Source: Book, Political Economy, A Textbook issued by the Institute of

Economics of the Academy of sciences of the USSR

Published date & Publisher: 1957, Lawrence & Wishart, London

Printed and bounded in Great Britain by Jarrold and Sons Ltd., Norwich

Transcription: Socialist Truth in Cyprus-London Bureaux, November 2005-

March 2006
____________________________________________________
 POLITICAL ECONOMY

A Textbook issued by the Economics Institute of the

Academy of Sciences of the U.S.S.R

This textbook on Political Economy, prepared by the Economics

Institute of the Academy of Sciences of the U.S.S.R., was first
published in the U.S.S.R. in 1954. Regarding political economy as the
science of the laws of development of the relations of production in
human society, it deals not only with the capitalist economic system
but also with pre- capitalist economic relations and, in considerable
detail, with the economics of socialism. In their Foreword the authors
stress that their aim is not dogmatic but scientific, and that they would
welcome discussion and critical comments by all readers.
POLITICAL ECONOMY

A Textbook issued by the Institute of

Economics the Academy of Sciences
of the U.S.S.R

1957
LAWRENCE & WISHART
LONDON
This Soviet textbook on POLITICAL ECQNOMY was first published in
Moscow in 1954. A second revised and enlarged edition appeared in
1955, and a third edition is in preparation. The present translation has
been made from the second Russian edition, and edited by C. P. Dutt
and Andrew Rothstein.

Printed and bound in Great Britain by Jarrold and Sons Ltd., Norwich
 FOREWORD TO THE FIRST EDITION
This textbook of political economy has been written by a group of
economists comprising: Academician K.V. Ostrovityanov; Corresponding
Member of the V.S.S.R. Academy of Sciences D.T. Shepilov; Corresponding
Member of the V.S.S.R. Academy of Sciences L.A. Leontyev; Member of the All-
Union Lenin Academy of Agricultural Sciences I.D. Laptev; Professor I.I.
Kuzminov; Doctor of Economic Sciences L.M. Gatovsky; Academician P.F.
Yudin; Corresponding Member of the V.S.S.R. Academy of Sciences A.I.
Pashkov; and Candidate [Master] of Economic Sciences V. I. Pereslegin, Doctor
of Economic Sciences V. N. Starovsky took part in the selection and editing of
the statistical information included in the textbook.
In connection with the drafting of the textbook a large number of Soviet
economists made valuable critical observations and contributed numerous
useful suggestions concerning the text. These observations and suggestions
were taken into account by the authors in their subsequent work on the book.
Of very great importance for the work on this textbook was the economic
discussion organised in November 1951 by the Central Committee of the
Communist Party of the Soviet Union. In the course of this discussion, in which
hundreds of Soviet economists took an active part, the draft for a textbook of
political economy submitted by the authors was subjected to a thorough critical
examination. The proposals worked out as the result of this discussion for
improving the draft of the textbook were an important source of improvement
in the structure of the textbook and of enrichment of its content.
The final editing of the textbook was carried out by comrades K.V.
Ostrovityanov, D.T. Shepilov, L.A. Leontyev, I.D. Laptev, I.I. Kuzminov and L.
M. Gatovsky.
Being fully aware of the importance of a Marxist textbook of political
economy, the authors intend to continue to work on further improvement of
the text, on the basis of critical observations and suggestions which readers
may make when they have acquainted themselves with the first edition. In this
connection, the authors request readers to address their comments and
suggestions on the textbook to the following address:
Institute of Economics,
U.S.S.R. Academy of Sciences,
14 Volkhonka,
Moscow
 FOREWORD TO THE SECOND EDITION
The first edition of the Political Economy textbook, published at the end of
1954 in over six million copies, was rapidly sold out. Besides the Russian
original, there were versions in many of the languages of the peoples of the
U.S.S.R., and the book was also published in a number of foreign countries.
The need has arisen for a second edition of the textbook. In preparing this
edition the authors have made it their task to strengthen the text with new
propositions and facts reflecting the steady growth of the socialist economy of
the U.S.S.R. and the countries of Peoples Democracy and also the further
intensification of the general crisis of capitalism.
The authors have endeavoured to take into account as fully as possible the
experience gained in using this textbook in higher educational institutions, in
Party schools and study- groups and for purposes of individual study. During
the past year the book has been discussed in many university departments of
political economy, and these have sent in their comments and requests. The
authors have also received a large number of letters from readers, containing
suggestions regarding the text. Broad conferences of economists were held in
March and April 1955 to discuss thoroughly the first edition of the book, these
being attended by research workers, teachers and business executives in
Moscow, Leningrad, Kiev, Minsk, Riga, Tallinn, Vilnius, Tbilisi, Erevan, Baku,
Tashkent, Ashkhabad, Stalinabad, Alma-Ata and Sverdlovsk.
The authors have carefully studied all the critical observations and proposals
regarding the textbook which have been made at conferences of university
departments of political economy, at meetings of economists and in readers
letters, and have tried to use all of these that made for improving the book. At
the same time they have maintained as their point of departure the need to
keep to the present type of textbook, intended for the general reader, and not
to allow its size to be enlarged to any considerable extent.
The final editing of the second edition has been carried out by comrades K.V.
Ostrovityanov, D.T. Shepilov, L.A. Leontyev, I.D. Laptev, I.I. Kuzminov and
L. M. Gatovksy.
Comrade V.N. Starovsky took part in the selection and editing of the
statistical information contained in the book.
The authors express their thanks to all the comrades who helped in the
preparation of the second edition of this textbook through their critical
comments and suggestions. The authors intend to continue to work on the
improvement of the textbook, and in this connection request readers to send
their comments and suggestions to the following address:
Institute of Economics,
U.S.S.R. Academy of Sciences,
14 Volkhonka,
Moscow
September I955
 CONTENTS
Chapter Page
Introduction
Part One:
PRE-CAPITALIST MODES OF PRODUCTION
I. The Primitive Communal Mode of Production
II. The Slave-Owning Mode of Production
III. The Feudal Mode of Production

Part Two:
THE CAPITALIST MODE OF PRODUCTION

A. PRE-MONOPOLY CAPITALISM

IV. Commodity Production. Commodities and Money

V. Capitalist Simple Co-operation and Manufacture
VI. The Machine Period of Capitalism
VII. Capital and Surplus-Value. The Basic Economic Law of Capitalism
VIII. Wages
IX. Accumulation of Capital and Impoverishment of the Proletariat.
X. Rotation and Turnover of Capital
XI. Average Profit and Price of Production
XII. Merchant Capital and Merchants Profit
XIII. Loan Capital and Loan Interest. Circulation of Money
XIV. Ground-Rent. Agrarian Relations under Capitalism
XV. The National Income
XVI. Reproduction of Social Capital
XVII. Economic Crises

B. MONOPOLY CAPITALISM-IMPERIALISM

Chapter

XVIII. Imperialism-The Highest Stage of Capitalism. The Basic

Economic Law of Mono poly Capitalism
XIX. The Colonial System of Imperialism
XX. The Place of Imperialism in History
XXI. The General Crisis of Capitalism
XXII. The Aggravation of the General Crisis of Capitalism after
the Second World War
ECONOMIC DOCTRINES OF THE CAPITALIST EPOCH

Part Three:
THE SOCIALIST MODE OF PRODUCTION

A. THE TRANSITIONAL PERIOD FROM CAPITALISM TO SOCIALISM

XXIII. Main Features of the Transitional Period from Capitalism to

 Socialism
XXIV. Socialist Industrialisation
XXV. The Collectivisation of Agriculture
XXVI. The Victory of Socialism in the U.S.S.R.

B. THE SOCIALIST ECONOMIC SYSTEM

XXVII. The Material Production Basis of Socialism

XXVIII. Social Ownership of the Means of Production-The
Foundation of the Production Relations of Socialism
XXIX. The Basic Economic Law of Socialism
XXX. The Law of Planned Proportional Development of the
National Economy
XXXI. Social Labour in Socialist Society
XXXII. Commodity Production, the Law of Value, and Money,
in Socialist Society
XXXIII. Wages in Socialist Economy
XXXIV. Economic Accounting and Profitability Costs and Price
XXXV. The Socialist System of Agriculture
XXXVI. Trade in Socialist Economy
XXXVII. The National Income of Socialist Society
XXXVIII. State Budget, Credit, and Currency Circulation
in Socialist Society
XXXIX. Socialist Reproduction
XL. The Gradual Transition from Socialism to Communism

C. THE BUILDING OF SOCIALISM IN THE

COUNTRIES OF PEOPLES DEMOCRACY

XLI. The Economic System of the Peoples Democracies in Europe

XLII. The Economic System of the Chinese Peoples Republic
XLIII. Economic Collaboration between the Countries of the Socialist
Camp
CONCLUSION
INDEX
 INTRODUCTION
Political economy belongs to the category of the social sciences.1 It studies the
laws of the social production and distribution of material wealth at the various
stages of development of human society.
The basis of the life of society is material production. In order to live, people
must have food, clothing and other material means of life. In order to have
these, people must produce them, they must work.
Men produce the material means of life, i.e., carry on their struggle with
nature, not as isolated individuals but together, in groups and societies.
Consequently, production is always and under all circumstances social
production, and labour is an activity of social man.
The process of producing material wealth presupposes the following factors:
(1) human labour; (2) the subject of labour; and (3) the means of labour.
Labour is a purposive activity of the human being in the process of which he
transforms and adapts natural objects so as to satisfy his own requirements.
Labour is a natural necessity, an indispensable condition for mans existence.
Without labour human life itself would be impossible.
Everything to which mans labour is directed is a subject of labour. Subjects
of labour may be directly provided by nature, as, for example, wood, which is
cut in the forest, or ore, which is extracted from the bowels of the earth.
Subjects of labour which have previously been subjected to the action of labour
(e.g., ore in a metal works, cotton in a spinning mill, yarn in a weaving mill)
are called raw materials.
Means of labour consist of all those things with the aid of which man acts
upon the subject of his labour and transforms it. To the category of means of
labour belong, first and fore- most, the instruments of production, together
with land, buildings used for production purposes, roads, canals, storehouses,
etc. The determining role among the means of labour is played by the
instruments of production. These comprise the various kinds of tools which
man uses in his working activity, beginning with the crude stone implements of
primitive man and ending with modern machinery. The level of development of
the instruments of production provides the criterion of societys mastery over
nature, the criterion of the development of production. Economic epochs
are distinguished one from another not by what is produced but by how
material wealth is produced, with what instruments of production.
The subjects of labour and the means of labour constitute the means of
production. Means of production in themselves, not associated with labour
power, can produce nothing. For the labour process, the process of producing
material wealth, to begin, labour power must be united with the instruments of
production.
Labour power is mans ability to work, the sum total of the physical and
spiritual forces of man, thanks to which he is able to produce material wealth.
1
The name of this science, political economy, comes from the Greek words politeia
and oikonomia. The word politeia means social organisation. The word oikonomia is
made up of two words: oikos-household, or household affairs, and nomos-law. The science
of political economy received its name only at the beginning of the seventeenth century.
Labour power is the active element in production, which sets the means of
production in motion. With the development of the instruments of production
mans ability to work also develops, his skill, habits of work, and production
experience.
The instruments of production, by means of which material wealth is
produced, and the people who set these instruments in motion and accomplish
the production of material values, thanks to the production experience and
habits of work which they possess, constitute the productive forces of society.
The working masses are the basic productive force of human society in all
stages of its development.
The productive forces reflect the relationship of people to the objects and
forces of nature used for the production of material wealth. In production,
however, men act not only upon nature but also upon each other.

They produce only by co-operating in a certain way and mutually

exchanging their activities. In order to produce, they enter into definite
connections and relations with one another and only within these social
connections and relations does their action on nature, does production,
take place. (Marx, Wage-Labour and Capital, Marx and Engels, Selected
Works, 1950, English edition, vol. I, p. 83.)

The definite social connections and relations formed between people in the
process of the production of material wealth constitute production relations.
Production relations include: (a) forms of ownership of the means of
production; (b) the position of the various social groups in production which
result from this, and their mutual relations; (c) the forms of distribution of
products that follow from the ownership of the means of production and
peoples position in production.
The character of production relations depends on who owns the means of
production (land, woods, waters, subsoil, raw materials, instruments of
production, buildings used for production, means of communication and
transport, etc.)whether they are the property of particular persons, social
groups or classes, which use these means of production in order to exploit the
working people, or whether they are the property of society, whose aim is the
satisfaction of the material and cultural requirements of the masses of the
people, of society as a whole. The state of production relations shows how the
means of production are distributed among the members of society and,
consequently, how the material wealth produced by people is distributed. Thus,
the determining feature, the basis of production relations is one or another
form of property in the means of production.
The relations of production determine also corresponding relations of
distribution. Distribution is the connecting link between production and
consumption.
The products which are produced in society serve either productive or
personal consumption. Productive consumption means the use of means of
production to create material wealth. Personal consumption means the
satisfaction of mans requirements in food, clothing, shelter, etc.
The distribution of the objects of personal consumption which are produced
depends on the distribution of the means of production. In capitalist society the
means of production belong to the capitalists, and in consequence the products
of labour also belong to the capitalists. The workers are deprived of means of
production and, so as not to die of hunger, are obliged to work for the
capitalists, who appropriate the products of their labour. In socialist society the
means of production are public property. In consequence, the products of
labour belong to the working people themselves.
In those social formations in which commodity production exists, the
distribution of material wealth takes place through exchange of commodities.
Production, distribution, exchange and consumption constitute a unity, in which
the determining role is played by production. The particular forms of
distribution, exchange and consumption so determined exert in their turn a
reciprocal influence upon production, either facilitating its development or
hindering it.
The sum total of the

relations of production constitutes the economic structure of society, the

real foundation, on which rises a legal and political superstructure and to
which correspond definite forms of social consciousness. (Marx, Preface to
a Contribution to the Critique of Political Economy, Marx and Engels,
Selected Works, 1950, English edition, vol. I, p. 329).

Having come into existence, the superstructure exercises in its turn a

reciprocal active influence on the basis, hastening or hindering the
development of the latter.
Production has a technical aspect and a social aspect. The technical aspect of
production is studied. by the natural and technical sciences: physics, chemistry,
metallurgy, engineering, agronomy and others. Political economy studies the
social aspect of production, the social-production, i.e., the economic, relations
between people. Political economy, wrote V. I. Lenin, is not at all concerned
with production but with the social relations between people in production, the
social system of production. (Lenin, Development of Capitalism in Russia,
Works, vol. III, pp. 40-1.)
Political economy studies production relations in their interaction with the
productive forces. The productive forc6S and the production relations as a
unity constitute the mode of production.
The productive forces are the most mobile and revolutionary factor in
production. The development of production begins with changes in the
productive forces-first of all with changes and development in the instruments
of production, and thereafter corresponding changes also take place in the
sphere of production relations. Production relations between men, which
develop in dependence upon the development of the productive forces,
themselves in turn actively affect the productive forces.
The productive forces of society can develop uninterruptedly only where the
production relations correspond to the nature of the productive forces. At a
certain stage of their development the productive forces outgrow the
framework of the given production relations and come into contradiction with
them. The production relations are transformed from being forms of
development of the productive forces into fetters upon them.
As a result, the old production relations sooner or later give place to new
ones, which correspond to the level of development which has been attained
and to the character of the productive forces of society. With the change in the
economic basis of society its superstructure also changes. The material
premises for the replacement of old production relations by new ones arise and
develop within the womb of the old formation. The new production relations
open up scope for the development of the productive forces.
Thus an economic law of the development of society is the law of obligatory
correspondence of production relations to the nature of the productive forces.
In society based on private property and the exploitation of man by man,
conflicts between the productive forces and the production relations are
expressed in the form of class struggle; In these conditions the replacement of
an old mode of production by a new one is effected by way of social revolution.
Political economy is an historical science. It is concerned with material
production in its historically determined social form, with the economic laws
which are inherent in particular modes of production. Economic laws express
the essential nature of economic phenomena and processes, the internal,
causal connection and dependence existing between them.
The laws of economic development are objective laws. They arise and
operate on the basis of definite economic conditions independent of mens will.
Men can understand these laws and utilise them in societys interests, but they
can neither abolish nor create economic laws.
The utilising of economic laws in class society always has a class character:
the advanced class of each social formation makes use of economic laws to
serve the progressive development of society, while the moribund classes resist
this.
Each mode of production has its own basic economic law.
This basic economic law expresses the essence of the given mode of
production and determines its main aspects and line of development.
Political economy

must first investigate the special laws of each separate stage in the
evolution of production and exchange, and only when it has completed this
investigation will it be able to establish the few quite general laws which hold
good for production and exchange as a whole. (Engels, Anti-Dhring, 1936,
Lawrence & Wishart edition, p.165.)

Consequently, the development of the various social formations is governed

both by their own specific economic laws and also by those economic laws
which are common to all formations, e.g., the law of obligatory correspondence
of the production relations to the character of the productive forces. Hence
social formations are not only marked off one from another by the specific
economic laws inherent in each given mode of production, but also are linked.
together by a few economic laws which are common to all formations.
Political economy studies the following basic types of production relations
which are known to history: the primitive-communal system, the slave-owning
system, feudalism, capitalism, socialism. The primitive-communal system is a
pre-class system. The slave-owning system, feudalism and capitalism are
different forms of society based on the enslavement and exploitation of the
working masses. Socialism is a social system which is free from exploitation of
man by man.
Political economy investigates how social production develops from lower,
stages to higher stages, and how the social orders which are based on
exploitation of man by man arise, develop and are abolished. It shows how the
entire course of historical development prepares the way for the victory of the
socialist mode of production. It studies, furthermore, the economic laws of
socialism the laws of the origin of socialist society and its subsequent
development along the road to the higher phase of communism.
Thus political economy is the science of the development of the social-
productive, i.e., economic, relations between men. It elucidates the laws which
regulate the production and distribution of material wealth in human society at
the different stages of its development.
The method of Marxist political economy is the method of dialectical
materialism. Marxist-Leninist political economy is built up by applying the
fundamental propositions of dialectical and historical materialism to the study
of the economic structure of society.
Unlike the natural sciences -physics, chemistry, etc.- political economy
cannot make use in its study of the economic structure of society of
experiments or tests carried out in artificially created laboratory conditions
which eliminate phenomena that hinder examination of a process in its purest
form. In the analysis of economic forms neither microscopes nor chemical
reagents are of use. The force of abstraction must replace both. (Marx,
Capital, vol. I, Kerr edition, p. 12.)
Every economic system presents a contradictory and complicated picture.
The task of scientific research consists in revealing by means of theoretical
analysis the deep-seated processes and fundamental features of the economy
which lie behind the outward appearance of economic phenomena and express
the essential character of the particular production relations concerned,
abstracting these from secondary features.
What emerges from such scientific analysis is economic categories, i.e.,
concepts which represent the theoretical expression of the real production
relations of the particular social formation concerned, such as, for example,
commodity, value, money, economic accounting, profitability, work-day, etc.
Marxs method consists of gradually ascending from the simplest of economic
categories to more complex ones, which corresponds to the progressive
development of society on an ascending line, from lower stages to higher.
When such a procedure is used in investigating the categories of political
economy, logical investigation is combined with historical analysis of social
development.
Marx, in his analysis of capitalist production relations, singles out first of all
the everyday relationship which is the simplest of all and the most frequently
repeated-the exchange of one commodity for another. He shows that in the
commodity, this cell-form of capitalist economy, the contradictions of capitalism
are laid up in embryo. With analysis of the commodity as his point of
departure, Marx explains the origin of money, discloses the process of
transforming money into capital, the essential nature of capitalist exploitation.
Marx shows how social development leads inevitably to the downfall of
capitalism, to the victory of communism.
Lenin pointed out that political economy must be expounded in the form of
the characterisation of the successive periods of economic development. In
conformity with this, in the present course of political economy, the basic
categories of political economy -commodity, value, money, capital, etc.- are
examined in the historical order of succession in which they arose at different
stages in the development of human society. Thus, elementary concepts
concerning commodities and money are presented already when pre-capitalist
formations are being described. These categories are later set forth in fully-
developed form when capitalist economy, in which they attain their full
development, is being studied. The same order of exposition will also be
employed when socialist economy is dealt with. An elementary notion of the
basic economic law .of socialism, of the law of planned, proportional
development of the national economy, of distribution according to work done,
and of value, money, etc., will be given in the section devoted to the
transitional period from capitalism to socialism. An expanded treatment of
these laws and categories will be given in the section The Socialist System of
National Economy.
Political economy, unlike history, does not undertake to study the historical
process of societys development in all its concrete variety. It provides basic
concepts concerning the fundamental features of each system of social
economy. Besides political economy there are also a number of other scientific
disciplines which are concerned with the study of economic relations in the
various branches of the national economy on the basis of the laws discovered
by political economy-industrial economics, agricultural economics, etc.
Political economy studies, not some transcendental questions detached from
life, but very real and living questions which affect the vital interests of men,
society, classes. Are the downfall of capitalism and the triumph of the socialist
system of economy inevitable; do the interests of capitalism contradict those of
society and of the progressive development of mankind; is the working class
capitalisms grave-digger and the bearer of the idea of the liberation of society
from capitalism-all these and similar questions are answered differently by
different economists, depending on which classs interests they voice.
That is just why there does not exist one single political economy for all
classes of society, but instead several political economies: bourgeois political
economy, proletarian political economy, and also the political economy of the
intermediate classes, petty-bourgeois political economy.
It follows from this, however, that those economists are quite wrong who
assert that political economy is a neutral, non-party science, that political
economy is independent of the struggle between classes in society and not
connected either directly or indirectly with any political party.
Is it possible in general for a political economy to exist which is objective,
impartial and does not fear the truth? Certainly this is possible. Such an
objective political economy can only be the political economy of that class
which has no interest in slurring over the contradictions and sore places of
capitalism, which has no interest in preserving the capitalist order: the class
whose interests merge with the interests of liberating society from capitalist
slavery, whose interests coincide with the interests of mankinds progressive
development. Such a class is the working class. Therefore an objective and
disinterested political economy can only be that which is based on the interests
of the working class. This political economy is the political economy of
Marxism-Leninism.
Marxist political economy is a very important component of Marxist-Leninist
theory.
The great leaders and theoreticians of the working class, K. Marx and F.
Engels, were the founders of proletarian political economy. In his work of
genius, Capital, Marx revealed the laws of the rise, development and downfall
of capitalism; and showed, the economic grounds for the inevitability of
socialist revolution and the establishment of the dictatorship of the proletariat.
Marx and Engels worked out in general terms the theory of the transition
period from capitalism to socialism and of the two phases of communist
society.
The economic teachings of Marxism underwent further creative development
in the works of V.I. Lenin, founder of the Communist Party and the Soviet
State, brilliant continuer of the work of Marx and Engels. Lenin enriched
Marxist economic science by generalising the new experience of historical
development, created the Marxist teaching on imperialism, revealed the
economic and political nature of imperialism, provided the initial propositions
for the basic economic law of modern capitalism, worked out the fundamentals
of the theory of the general crisis of capitalism, created a new, complete theory
of socialist revolution, and worked out scientifically the basic problems of the
building of socialism and communism..
Lenins great companion-in-arms and pupil, J.V. Stalin, put forward and
developed a number of new propositions in political economy, based on the
fundamental works of Marx, Engels and Lenin which had created a really
scientific political economy.
Marxist-Leninist economic theory is creatively developed in the resolutions of
the Communist Party of the Soviet Union and of the fraternal Communist
Parties and the works of the pupils and companions-in-arms of Lenin and
Stalin-the leaders of these parties, who have enriched economic science with
new conclusions and propositions on the basis of generalising the practice of
the revolutionary struggle and of the building of socialism and communism.
Marxist-Leninist political economy is a powerful weapon of ideas in the hands
of the working class and of all working mankind in their struggle for
emancipation from capitalist oppression. The living strength of the economic
theory of Marxism-Leninism consists in the fact that it arms the working class
and the working masses with knowledge of the laws of the economic
development of society, giving them clear prospects and confidence in the
ultimate victory of Communism.
 Part One

PRE-CAPITALIST MODES OF PRODUCTION

 CHAPTER I

THE PRIMITIVE COMMUNAL MODE OF PRODUCTION

The Rise of Human Society

The rise of man belongs to the present, the Quaternary period of the earths
history, which science reckons as a little less than a million years. In various
regions of Europe, Asia and Africa distinguished by their warm and moist
climates there dwelt a highly developed species of anthropoid ape. As a result
of a very long development, which included a number of transitional stages,
from these remote ancestors there originated man.
The emergence of man was one of the greatest turning points in the
development of nature. This turning point took place when mans ancestors
began to make implements of labour. The fundamental difference between
man and animal starts only with the making of implements, though they be
the very simplest. It is well known that apes often use a stick or stone to knock
fruit from a tree or to defend themselves from attack. But not a single animal
has ever made even the most primitive implement. The conditions of their daily
lives drove mans ancestors to make implements. Experience taught them that
sharpened stones could be used for defence against attack or for hunting
animals. Mans ancestors began to make stone implements, striking one stone
against another. In this way a start was made in the making of implements.
With the making of implements labour begins.
Thanks to labour the fore-paws of the anthropoid ape were converted into
the hands of man. Remains of the ape-man-a transitional stage from ape to
man-found by archaeologists afford evidence of this. The ape-mans brain was
much smaller than the human brain, but his hand was already comparatively
little different from that of man. It follows that the hand is not only an organ of
labour, but also its product.
As hands became freed for acts of labour, mans ancestors acquired an ever
more upright gait. Once the hands were occupied with labour the final
transition to an upright gait took place, and this played a very important part in
making man.
Mans ancestors lived in hordes, or herds; the first men also lived in herds.
But between men there arose a link which did not, and could not, exist in the
animal world: the link through labour. Men made implements jointly and jointly
they applied them. Consequently, the rise of man was also the rise of human
society, the transition from the zoological to the social condition.
Mens common labour led to the rise and development of articulate speech.
Language is the means, the implement by which men communicate with one
another, exchange opinions and achieve mutual understanding.
The exchange of thoughts is a constant and vital necessity, since without it
the common activities of men in their struggle with the forces of nature, and
the very existence of social production, are impossible.
Labour and articulate speech had a decisive influence in perfecting mans
organism, in the development of his brain. The development of language is
closely linked with the development of thought. In the process of labour mans
circle of perceptions and conceptions was widened, his sensory organs were
perfected. Mans labour activities became conscious acts as distinct from the
instinctive activities of animals.
Thus, labour is the prime basic condition for all human existence, and this
to such an extent that, in a sense, we have to say that labour created man
himself. (Engels, The Part Played by Labour in the Transition from Ape to
Man, Man: and Engels, Selected Works, 1950, English edition, vol. II, p. 74.)
Thanks to labour, human society arose and began to develop.

Conditions of Material Life. The Development of the

Implements of Labour

In primitive times man was extremely dependent on his natural

surroundings; he was completely weighed down by the difficulties of existence,
by the difficulties of his struggle with nature. The process of mastering the
elemental forces of nature went on extremely slowly, since the implements of
labour were extremely primitive. Mans first implements were roughly chipped
stones and sticks. They were like artificial extensions of his bodily organs: the
stone, of his fist, the stick, of his outstretched arm.
Men lived in groups whose numbers did not exceed a few dozen persons: a
greater single number could not have provided food for themselves. When
groups met clashes sometimes took place between them. Many groups
perished from hunger or became the prey of wild animals. In these conditions
labour in common was for men the only possible form of labour and an
absolute necessity.
For a long time primitive man lived mainly by means of food gathering and
hunting, both carried out collectively with the help of the simplest implements.
What was jointly obtained was jointly consumed. Cannibalism occurred among
primitive men as a consequence of the precariousness of the food supply. In
the course of many thousands of years, as though groping their way, by means
of an extremely slow accumulation of experience, men learned to make the
simplest implements suitable for striking, cutting, digging and the other very
simple activities which then almost exhausted the whole sphere of production.
The discovery of fire was a great victory for primitive man in his struggle with
nature. At first men learned to make use of fire which had arisen naturally.
They saw lightning set fire to a tree, observed forest fires and the eruptions of
volcanoes. The fire which had been obtained by chance was long and carefully
preserved. Only after many thousands of years did man learn the secret of
making fire. With more advanced production of implements men observed that
fire came from friction and learned to make it.
The discovery of fire and its application gave men dominion over specific
natural forces. Primitive man had finally broken away from the animal world:
the long epoch of his becoming human had been completed. Thanks to the
discovery of fire the conditions of material life for man changed fundamentally.
First, fire could be used to prepare food, as a result of which the number of
edible objects available to man was increased: it became possible to eat fish,
meat, starchy roots, tubers and so on prepared with the help of fire. Secondly,
fire began to play an important part in making the implements of production.
Thirdly, it also afforded protection against cold, thanks to which it became
possible for men to spread over the greater part of the world. Fourthly, fire
afforded a defence against wild beasts.
For a long time hunting remained the most important source of the means of
existence. It provided men with skins for clothes, bones with which to make
implements, and meat which influenced the further development of the human
organism and primarily the development of the brain.
As his physical and mental development progressed man became able to
perfect his implements. A stick with a sharpened end served for hunting. Then
he began to fix sharpened stones to the stick. Stone-tipped spears, stone axes,
scrapers and knives, harpoons and fish-hooks appeared. These implements
made possible the hunting of large animals and the development of fishing.
Stone remained the chief material for implement-making for a very long
time. The epoch when stone implements predominated, which lasted for
hundreds of thousands of years, is called the Stone Age. Only later did man
learn to make implements of metal; at first of native metal, in the first instance
copper (but copper, being a soft metal, was not widely used to make
implements), later of bronze (an alloy of copper and tin), and finally of iron.
Thus, after the Stone Age the Bronze Age followed, and after that the Iron
Age.

The earliest traces of the smelting of copper in Hither Asia date from the fifth to fourth
millennia B.C. In Southern and Central Europe the smelting of copper arose in approximately
the third to second millennia B.C. The oldest traces of bronze in Mesopotamia date from the
fourth millennium B.C.
The earliest traces of the smelting of iron have been discovered in Egypt and Mesopotamia;
they date from before 2000 B.C. In Western Europe the Iron Age began about 1000 B.C.

The invention of the bow and arrow, with the appearance of which hunting
began to provide more of the necessities of life, was an important landmark on
the road to improving the implements of labour. The development of hunting
led to the origin of primitive cattle-breeding. Hunters began to domesticate
animals. The dog was domesticated earlier than other animals, and later goats,
cattle, pigs and horses.
The origin of primitive agriculture was a further great stride in the
development of societys productive forces. While gathering fruits and roots of
plants, primitive men began to notice that grains which were dropped on the
ground sprouted. Thousands of times this remained uncomprehended, but
sooner or later the connection of these phenomena was established in primitive
mans mind, and he began to cultivate plants. Thus agriculture arose.
For a long time it remained extremely primitive. The earth was broken up by
hand, at first with a simple stick, then with a stick with a hooked end, a hoe. In
the river valleys the seeds were scattered on the mud which had been brought
down by the river floods. The domestication of animals made possible the use
of cattle for draught purposes. Later, when men learned to smelt metal, and
metal implements appeared, their application made agricultural labour more.
productive. Tillage acquired a firmer basis. Primitive tribes began to adopt a
settled mode of life.
 The Production Relations of Primitive Society.
Natural Division of Labour

Production relations are determined by the character and condition of the

productive forces. In primitive communal society the basis of production
relations is communal property in the means of production. Communal
property corresponds to the character of the productive forces in this period.
The implements of labour. in primitive society were so crude that they
prevented primitive man from struggling with the forces of nature and wild
animals singlehanded. This primitive type collective or co-operative
production, Marx wrote, was, of course, the result of the weakness of the
individual and not of the socialisation of the means of production. (Rough
drafts of Marxs Letter to Vera Zasulich, Marx and Engels, Works, Russian
edition, vol. XXVII, p. 681.) Hence came the necessity for collective labour, for
common property in land and other means of production as well as in the
products of labour. Primitive men had no conception of private ownership of the
means of production. Only certain implements of production, those which were
also implements of defence against wild animals, were their private property,
used by separate members of the commune.
Primitive mans labour created no overplus beyond what was essential for
life, that is no surplus product. In such conditions there could be no classes or
exploitation of man by man in primitive society. Social property extended only
to small communities which were more or less isolated from one another. As
Lenin put it, the social character of production here embraced only the
members of one community.
The labour activity of men in primitive society was based on simple co-
operation. Simple co-operation is the simultaneous application of more or less
considerable labour force to perform work of the same kind. Even simple co-
operation gave primitive men the possibility of performing tasks which would
have been unthinkable for a single man (for example, in hunting large
animals).
In the extremely low level of development of productive forces which then
existed the meagre food was divided equally. There could be no other division,
since the products of labour scarcely sufficed to satisfy the most essential
needs: if one member of a primitive community received more than the share
which was equal for all, then someone else would be doomed to starvation and
death. Thus, equal distribution of the products of common labour was
inevitable.

The custom of equal division was deeply rooted among primitive peoples. It has been
observed by travellers living among tribes at a low level of social development. More than a
hundred years ago the great naturalist Darwin made a voyage round the world. Describing the
life of tribes on Tierra del Fuego he relates the following incident: The Tierra del Fuegans were
given a piece of canvas; they tore the canvas into completely equal parts so that each one
should have an equal share.

The basic economic law of primitive communal society consisted in the

securing of the vitally necessary means of existence with the help of primitive
implements of production, on the basis of communal. ownership of the means
of production, by means of common labour and the equal distribution of the
products.
As the implements of production are developed, division of labour arises. Its
simplest form was the natural division of labour, i.e., division of labour
dependent on sex and age, between men and women, between adults, children
and old people.

The famous Russian traveller Miklukho-Maklai, who in the second half of the nineteenth
century studied the life of the New Guinea Papuans, thus describes the collective process of
labour in tillage. Several men stand in a row and. thrust sharpened sticks deep into the soil and
then, with one heave, raise a great lump of earth. The women follow after them crawling on
their knees. In their hands they have sticks with which they break up the soil raised by the
men. Children of various ages go behind the women, rubbing the soil out with their hands.
After the soil has been crumbled the women, using little sticks, make depressions m the soil
and bury seeds or plant roots in them. Labour here is collective in character and at the same
time there exists division of labour by sex and age.

As productive forces developed, the natural division of labour gradually

became stable and consolidated. The specialisation of men in the sphere of
hunting, of women in the sphere of gathering vegetable food and
housekeeping, led to a certain increase in the productivity of labour.

Clan Society. The Matriarchal Clan. The Patriarchal Clan

While the process of mans separation from the animal world was taking
place people lived in herds or hordes as their immediate ancestors had done.
Subsequently, in connection with the rise of primitive economy and the growth
of population, the clan organisation of society gradually came into existence.
In those times only people in kinship relation with one another could unite
for common labour. Primitive implements of production limited the possibility of
collective labour within the narrow framework of a group of people linked by
kinship and life together. Primitive man was usually hostile to anyone who was
not tied to him by kinship and life together. The clan was a group at first
consisting of a few dozen persons in all and linked by the bond of blood
relationship. Every such group existed separately from other such groups. With
the passage of time the clans numbers increased, reaching several hundred
persons. The habit of common existence developed the benefits of common
labour more and more compelled men to stay together.

Morgan, a student of the life of primitive peoples described the clan structure which was still
preserved among the Iroquois Indians in the middle of the last century. Hunting, fishing, the
gathering of fruits of the earth and tillage were the basic occupations of the Iroquois: Labour
was divided between men and women. Hunting and fishing, the making of weapons and
implements of labour clearance of the soil, the building of huts and fortifications were the
mens duties. The women carried out the basic field work gathered the harvest and stored it,
cooked, made clothing and earthenware and gathered wild fruit, berries, nuts and tubers. The
land was the clans common property. The heavier work -cutting down trees, clearance of the
land for arable, large hunting expeditions- was carried out in common. The Iroquois lived in so-
called great houses accommodating twenty families and more. Such a group had common
stores where their stock of provisions was kept. The woman at the head of the group divided
the food among the separate families. In time of warfare the clan chose itself a war chief who
had no material benefits; with the end of warfare his power ceased.

At the first stage of clan society1 woman had the leading position and this
followed from the material conditions of mens life at that period. Hunting with
the help of the most primitive implements, which was the mens business,
could not completely secure the communitys livelihood; its results were more
or less fortuitous. In such conditions even the embryonic forms of agriculture
and cattle-breeding (the domestication of animals) were of great economic
significance. They were a more reliable and constant source of livelihood than
hunting. But tillage of the soil and cattle-breeding, so long as they were carried
on by primitive methods, were predominantly the occupation of the women
who remained near the domestic hearth while the men were hunting.
Throughout a lengthy period woman played the dominant part in the clan
community. Kinship was reckoned in the maternal line. This was the maternal
or matriarchal clan (matriarchy).
In the course of further development of the productive forces when nomadic
breeding of cattle (pastoral economy) and a more developed agriculture (corn-
growing), which were the mens concern, began to playa decisive part in the
life of the primitive community, the matriarchal clan was replaced by the
paternal or patriarchal clan (patriarchy). The dominant position passed to the
man. He put himself at the head of the clan community. Kinship began to be
reckoned in the paternal line. The patriarchal clan existed in the last period of
primitive communal society.
The absence of private property, of a class division of society and of the
exploitation of man by man precluded the possibility of the State appearing.

In primitive society... there were yet no signs of the existence of the

State. We find the predominance of custom, authority, respect, the power
enjoyed by the elders of the tribe; we find this power sometimes accorded to
women... but nowhere do we find a special category of people who are set
apart to rule others and who, in the interests and with the purpose of rule,
systematically and permanently command a certain apparatus of coercion,
an apparatus of violence ... (Lenin, The State, a lecture delivered at the
Sverdlov University, July 11, 1919, Selected Works, Twelve-volume English
edition, vol. XI, p. 643.)

The Rise if Social Division if Labour and Exchange

With the advance to cattle-breeding and agriculture there arose the social
division of labour, that is, the division of labour under which at first different
communities, and then individual members of communities as well, began to
engage in differing forms of productive activity. The separation of the pastoral
tribes was the first great social division of labour.
The pastoral tribes engaged in breeding cattle achieved substantial
successes. They learned to care for the cattle in such a way that they received

1
This is the same as that society which Engels, in his Origin of the Family, Private
Property and the State, following Lewis H. Morgan: calls, gentile society. The Latin gens
meant the same as the Gaelic clan. Editor, English edition.
more meat, wool and milk. This first big social division of labour already led to
what was for that age a noticeable rise in the productivity of labour.
For a long time in the primitive community there was no basis for exchange;
the whole product was obtained and consumed in common. Exchange first
originated and developed between clan communities, and for a long time was
fortuitous.
With the appearance of the first great social division of labour the situation
changed. Among the pastoral tribes there appeared a certain surplus of cattle,
milk products, meat, hides and wool. At the same time they experienced a
need for products of the soil. In their turn the tribes engaged in agriculture
achieved as time went on considerable successes in the output of agricultural
produce. Tillers of the soil and breeders of cattle required products which they
could not produce within their own economy. All this led to the development of
exchange. Other forms of productive activity also developed side by side with
tillage of the soil and cattle-breeding. Even in the period of stone implements
men learned to make vessels from clay. Later, hand weaving appeared. Finally,
with the discovery of iron smelting it became possible to make metal
implements of labour (the wooden plough with iron share, the iron axe) and
weapons (iron swords). It became ever more difficult to combine these forms
of labour with tillage of the soil or pastoral labour. In the communities men
engaged in handicraft gradually separated out. The handiwork of the craftsmen
-blacksmiths, weapon-makers, potters and so on- began more and more
frequently to be offered for exchange. The field of exchange considerably
widened.

The Rise of Private Property and Classes. The Breakdown of

Primitive Communal Society

Primitive communal society came to full flower under matriarchy. The

patriarchal clan already concealed in itself the seeds of the breakdown of the
primitive communal structure. The production relations of primitive communal
society up to a certain period corresponded to the level of development of the
productive forces. In the last stage of patriarchy, however, with the appearance
of new, more improved implements of production (the Iron Age), the
production relations of primitive society ceased to correspond to the new
productive forces. The narrow framework of communal property and the equal
distribution of the products of labour began to act as a brake on the
development of new productive forces.
Formerly it had been possible to work a field only by the joint labour of
dozens of men. In such conditions common labour was a necessity. With the
development of the implements of production and the growth of the
productivity of labour one family was now in a position to work a plot of land
and secure for itself the essential means of existence. Thus the perfecting of
implements of production made possible the advance to an individual economy,
which was more productive in those historical conditions. Joint labour and a
communal economy became less and less necessary. While common labour
demanded common property in the means of production, individual labour
demanded private property.
The origin of private property is inseparably linked with the social division of
labour and the development of exchange. At first exchange was carried out by
the heads of the clan communities-by the elders or patriarchs. They took part
in barter deals as representatives of the communities. What they exchanged
was the property of the community. But as social division of labour developed
further, and exchanges expanded, the clan chiefs gradually began to treat
communal property as their own.
At first the chief item of exchange was cattle. Pastoral communities had large
flocks of sheep and goats and herds of cattle. The elders and patriarchs, who
already held great power in society, became accustomed to dispose of these
herds as their own property. Their right in fact to dispose of the herds was also
recognised by the other members of the community. Thus first of all cattle, and
then gradually all the implements of production, became private property.
Common property in land was preserved longest of all.
The development of the productive forces and the appearance of private
property led to the breakdown of the clan. The clan fell apart into large
patriarchal families. Then, within the large patriarchal family, individual family
units began to separate out, converting the implements of production, utensils
and cattle into their own private property. The ties of clan became weakened
with the growth of private property. The village community began to occupy
the place of the clan community. The village, or neighbourhood, community as
distinct from the clan consisted of people not necessarily bound by kinship.
House, household goods, cattle, all were in the private ownership of individual
families. On the other hand, woods, meadows, water and other natural
amenities, and also for a definite period the ploughland, were communal
property. At first the ploughland was periodically re-divided between the
members of the community, but later it began to pass into private hands.
The rise of private property and exchange was the beginning of a great
turning-point in the whole structure of primitive society. The development of
private property and property distinctions led to the result that within the
communities different interests arose among different groups. In these
conditions the individuals who in the community held the offices of elders,
military leaders and priests used their position to enrich themselves. They
acquired a considerable share of the communal property. The bearers of these
social offices became more and more distinct from the mass of members of the
community, forming a clan aristocracy and more and more frequently passing
on their power to their heirs. Aristocratic families became at the same time the
richest families. The mass of the members of the community gradually fell into
one form or another of economic dependence on the rich and aristocratic upper
stratum.
With the growth of productive forces, mans labour applied to cattle-breeding
and agriculture began to yield greater means of subsistence than were
essential to maintain mans life. The possibility arose of appropriating surplus
labour and the surplus product, that is, the surplus of labour and product
above what was needed to maintain the worker himself and his family. In these
conditions it became advantageous not to kill men taken prisoner, as had
formerly been done, but to make them work, converting them into slaves. The
slaves were seized by the more aristocratic and richer families. In its turn slave
labour led to a further growth of inequality, since the households using slaves
grew rich quickly. In conditions of the growth of property inequality the rich
began to convert into slaves not only prisoners but also their own impoverished
and indebted fellow-tribesmen. Thus the first class division of society arose,
the division into slave-owners and slaves. There appeared the exploitation of
man by man, that is, the uncompensated appropriation by some of the
products of the labour of others.
The relations of production prevailing in primitive communal society broke
down, perished and made way for new relations of production, suited to the
character of new productive forces.
Common labour gave way to individual labour, social property to private
property clan society to class society. The whole history of mankind from this
period onwards, right up to the building of socialist society, became the history
of class struggle.
Bourgeois ideologists represent matters as if private property had existed for
ever. History refutes such inventions and convincingly bears witness to the fact
that all people passed through the stage of primitive communal society based
on communal property, and knowing no private property.

Social Conceptions of the Primitive Epoch

Primitive man, weighed down by need and the difficulties of his struggle for existence, at
first did not distinguish himself from his natural surroundings. For a long time he had no really
coherent conceptions either of himself or of the natural conditions of his existence.
Only gradually did very limited and crude conceptions of himself and of the conditions
surrounding his life begin to take shape in the mind of primitive man. There could not be the
slightest trace of religious views which, as the defenders of religion assert were allegedly
inherent in the human consciousness from the very outset. Only later did primitive man -not
being in a position to understand and explain the phenomena of nature and social life around
him- in his conceptions begin to people the world around him with supernatural beings, spirits
and magical powers. He attributed spiritual existence to the forces of nature. This was the so-
called animism (from the Latin anima-the spirit, soul). Primitive myths and primitive religion
were born of these dim conceptions in men of their own nature and that around them. In them
the primitive equality of the social structure was reproduced. Primitive man not knowing class
division and property inequality in real life introduced no corresponding subordination in his
imaginary world of spirits. He divided the spirits into his own and others friendly and hostile.
Division of the spirits into higher and lower appeared only when the primitive community was
breaking down.
Primitive man felt himself an inseparable part of the clan. He could not imagine himself
outside the clan. A reflection of this in ideology was the cult of the ancestral progenitors of the
clan. It is characteristic that in the course of the development of language I and my arise
much later than other words. The power of the clan over the individual was exceedingly strong.
The breakdown of the primitive community was accompanied by the origin and spread of
conceptions associated with private property. This was clearly reflected in myths and religious
conceptions. When private property relations began to be established, and property inequality
appeared, among many tribes there arose the custom of imposing a religious prohibition
-taboo- on goods appropriated by the leaders or rich families (the inhabitants of the Pacific
Islands used the word taboo for everything that was prohibited or taken out of common use).
With the breakdown of the primitive community and the rise of private property, the power of
religious prohibition began to be used to reinforce the new economic relations and property
inequality which had come into existence.
 BRIEF CONCLUSIONS
(1) Thanks to labour, men emerged from the animal world and human
society arose. The distinctive feature of human labour is the making of
implements of production.
(2) The productive forces of primitive society were on an exceedingly low
level, the implements of production were extremely primitive. This necessitated
collective labour, social property in the means of production and equal
distribution. In the primitive community there was no property inequality or
private property in the means of production; there were no classes or
exploitation of man by man. Social ownership of the means of production was
confined within a narrow framework; it was the property of small communities
more or less isolated from one another.
(3) The basic economic law of the primitive community consists in the
securing of mans vitally necessary means of subsistence with the help of
primitive implements of production, on the basis of communal property in the
means of production, by means of common labour and the equal distribution of
the products.
(4) Working together, men for a long time performed uniform labour. The
gradual improvement of implements of production promoted the rise of a
natural division of labour, depending on sex and age. Further perfecting of the
implements of production and the mode of obtaining the means of life, the
development of cattle-breeding and. agriculture led to the appearance of the
social division of labour and exchange, of private property and property
inequality, to the division of society into classes and to the exploitation of man
by man. Thus the growing forces of production entered into contradiction with
the relations of production, as a. result of which primitive communal society
gave way to another type of relations of production-the slave-owning system.
 CHAPTER II

THE SLAVE-OWNING MODE OF PRODUCTION

Rise of the Slave-Owning System
Slavery is the first and crudest form of exploitation in history. In the past it
existed among almost all peoples.

The transition from the primitive community to the slave-owning system took place for the
first time in history in the countries of the ancient East. The slave-owning mode of production
predominated in Mesopotamia (Sumer, Babylonia, Assyria and others), Egypt, India and China
by the fourth millennium B.C. in some cases, and not later than the second millennium B.C. in
others. In the first millennium B.C. the slave-owning mode of production was dominant in
Transcaucasia (Urartu); from the eighth or seventh centuries B.C. to the fifth or sixth centuries
A.D. a powerful slave-owning State existed in Khorezm. The culture achieved in the slave-
owning countries of the ancient East greatly influenced the development of the peoples of
European countries.
In Greece the slave-owning mode of production reached its height in the fifth to fourth
centuries B.C. Subsequently slavery developed in the States of Asia Minor, Macedonia (from the
fourth to the first centuries B.C.). The slave-owning system reached the highest stage of its
development in Rome in the period from the second century B.C. to the second century A.D.

At first slavery bore a patriarchal or domestic character. There were

comparatively few slaves. Slave labour was not yet the basis of production but
played a subsidiary part in the economy. The aim of the economy remained the
satisfaction of the demands of the large patriarchal family which had hardly
any recourse to exchange. The masters power over his slaves was already
unlimited but the sphere of application of slave labour was limited.
The further growth of productive forces, and the development of the social
division of labour and of exchange, formed the basis of societys transition to
the slave-owning system.
The advance from stone to metal implements of labour led to a considerable
extension of the limits of human labour. The invention of the blacksmiths
bellows enabled man to make iron implements of labour of a durability not
seen before. It became possible with the help of the iron axe to clear the land
of forests and undergrowth for ploughing. The wooden plough with iron share
made it possible to work comparatively large plots of land. Primitive Hunting
economy gave place to agriculture and cattle-breeding. Handicrafts appeared.
In agriculture, which remained the main branch of production, methods of
tillage and cattle-breeding improved. New branches of agriculture arose; vine
and flax growing, the growing of oil crops, and so on. The rich families herds
increased. More and more working hands were needed to look after the cattle.
Weaving, metal-working, the art of pottery and other crafts gradually
improved. Formerly a craft had been a subsidiary occupation of the
husbandman or herdsman. Now for many people it became an independent
occupation. The separation of handicraft from agriculture took place. This was
the second large-scale social division of labour.
With the division of production into two large basic branches, agriculture and
handicraft, there arises production directly for exchange though still in an
undeveloped form. The growth in productivity of labour led to an increase in
the amount of the surplus product which, with private property in the means of
production, afforded the opportunity for the accumulation of wealth in the
hands of a minority of society, and on this basis for the subordination of the
working majority to the exploiting minority, for the conversion of labourers into
slaves.
Under conditions of slavery the economy was basically a natural one. A
natural economy is one in which the products of labour are not exchanged but
consumed within the economy where they were produced. At the same time,
however, the development of exchange took place. At first craftsmen made
their products to order and then for sale on the market. At the same time,
many of them continued for long to have small plots of land and to cultivate
them to satisfy their needs. In the main the peasants carried on a natural
economy, but were compelled to sell a certain part of their produce on the
market in order to be able to buy the craftsmans wares and to pay money
taxes. Thus gradually part of the products of the craftsmans and peasants
labour became commodities.
A commodity is a product prepared not for direct consumption but for
exchange, for sale on the market. The production of objects for exchange is
the characteristic feature of commodity economy. Thus the separation of
handicraft from agriculture, the rise of handicraft as an independent
occupation, signified the birth of commodity production.
So long as exchange bore a fortuitous character one product of labour was
directly exchanged for another. As exchange expanded and became a regular
phenomenon, a commodity for which any other commodity would be willingly
given gradually emerged. Thus money arose. Money is a universal commodity
by which all other commodities are evaluated and which serves as an
intermediary in exchange.
The development of handicraft and exchange led to the formation of towns.
Towns arose in remote antiquity, at the dawn of the slave-owning mode of
production. At first the town was little to be distinguished from the village, but
gradually handicraft and trade concentrated in towns. The towns became more
and more distinct from villages by the type of occupation of the inhabitants and
by their way of life.
Thus began the separation of town from country and the rise of the
antithesis between them.
As the quantity of exchangeable commodities increased, the territorial limits
of exchange also expanded. Merchants arose who in pursuit of gain purchased
commodities from the producers, carried the commodities to markets
sometimes quite far from the place of production, and sold them to the
consumers.
The expansion of production and exchange considerably intensified inequality
of property. Money, working cattle, implements of production and seeds
accumulated in the hands of the rich. The poor were compelled more and more
frequently to turn to them for loans, mainly in kind, but sometimes also in
money. The rich lent them implements of production, seeds and money,
making bondsmen of their debtors and, when the latter did not pay their debts,
made them slaves and took their land. Thus usury arose. It brought a further
growth of riches to some, debt bondage to others.
The land also began to be converted into private property. It began to be
sold and mortgaged. If a debtor could not pay the usurer, he had to abandon
his land and sell himself and his children into slavery. Sometimes, on one
pretext or another, the large landowners seized part of the meadows and
pastures from the peasant village communes.
Thus proceeded the concentration of landed property, wealth in money and
masses of slaves in the hands of the rich slave-owners. The small peasant
economy more and more broke down, while the slave-owning economy grew
strong and expanded, spreading to all branches of production.

The continued increase of production and with it the increased

productivity of labour enhanced the value of human labour-power. Slavery,
which had been a nascent and sporadic factor in the preceding stage, now
became an essential part of the social system. The slaves ceased to be
simply assistants, but were now driven in scores to work in the fields and
workshops. (Engels, The Origin of the Family, Private Property and the
State; Marx and Engels, Selected Works, English edition, vol. II, p. 283.)

Slave labour became the basis of societys existence. Society split into two
basically opposed classes, slaves and slave-owners.
Thus the slave-owning mode of production was established.
Under the slave-owning system the population was divided into free men
and slaves. The free had all civil, property and political rights (except women,
who were essentially in the position of slaves). The slaves were deprived of all
these rights and had no right of admission to the ranks of the free. In their
turn the free were divided into a class of large landowners, who were also
large-scale slave-owners, and a class of small producers (peasants, craftsmen),
the well-to-do strata of which also made use of slave labour and were slave-
owners. The priests, who played a great part in the period of slavery, were
attached, because of their status, to the class of large landowners and slave-
owners.
Apart from the class contradiction between slaves and slave-owners there
also existed a class contradiction between the large landowners and the
peasants. But with the development of the slave-owning system slave labour,
as the cheapest, embraced the larger part of the branches of production and
became the main basis of production; and the contradiction between slaves
and slave-owners became the basic contradiction of society.
Societys split into classes evoked the necessity for the State. With the
growth of social division of labour and the development of exchange, separate
clans and tribes came ever closer together and combined into unions. The
character of clan institutions was changed. The organs of the clan system more
and more lost their popular character. They were converted into organs of
dominance over the people, into organs of plunder and oppression of their own
and of neighbouring tribes. The elders and military leaders of the clans and
tribes became princes and kings. Formerly they had authority as people elected
by the clan or union of clans. Now they began to use their power to defend the
interests of the propertied upper layer, to keep a grip on their fellow clansmen
falling into poverty, and to hold down the slaves. Armed retinues, courts and
punitive organs served this end.

Thus State power arose.

Only when the first form of the division of society into classes appeared,
only when slavery appeared, when a certain class of people, by
concentrating on the crudest forms of agricultural labour, could produce a
certain surplus, when this surplus was not absolutely essential for the most
wretched existence of the slave and passed into the hands of the slave-
owner when in this way the existence of this class of slave-owners took firm
root -and in order that it might take firm root- it was essential that the state
should appear. (Lenin, The State, Selected Works, English edition, vol. XI,
p. 647; and in Lenin and Stalin on the State, Little Lenin Library, vol. XXIII,
p. 15.)

The State arose in order to hold in check the exploited majority in the
interests of the exploiting minority.
The slave-owning State played a great part in the development and
stabilisation of the production relations of slave-owning society. The slave-
owning State held the slave masses in subjection. It grew into a widely
ramified machinery for domination over and oppression of the masses of the
people. The democracy in ancient Greece and Rome which bourgeois history
textbooks extol was essentially a slave-owning democracy.

Production Relations of the Slave-Owning System. Position

of Slaves

The production relations of slave-owning society were based on the fact that
not only the means of production but also the workers in production, the
slaves, were the slave-owners property. The slave was considered a chattel.
He was at the complete and utter disposal of his owner. Slaves were not only
exploited, they were bought and sold like cattle and were even killed with
impunity. While in the period of patriarchal slavery the slave had been
regarded as a member of the family, in the conditions of the slave-owning
mode of production he was not considered even a man.

The slave did not sell his labour-power to the slave-owner, any more than
the ox sells its services to the peasant. The slave, together with his labour-
power, has been sold once and for all to his owner. (Marx, Wage, Labour
and Capital, Selected Works, English edition, vol. I, p. 77.)

Slave labour had an openly compulsory character. Slaves were made to work
by means of the crudest physical force. They were driven to work with whips
and were subjected to harsh punishments for the least negligence. Slaves were
branded so that they could be more easily taken if they fled. Many of them
wore permanent iron collars which bore their owners name.
 The slave-owner acquired the whole product of slave labour. He gave the
slaves only the smallest possible quantity of the means of subsistence-
sufficient to prevent them dying of hunger and to enable them to go on
working for him. The slave-owner took not only the surplus product but also a
considerable part of the necessary product of the slaves labour.
The development of the slave-owning mode of production was accompanied
by an increase in the demand for slaves. In a number of countries slaves as a
rule had no family. The rapacious exploitation of slaves led to their rapid
physical exhaustion. It was continually necessary to add to the numbers of
slaves. War was an important source of obtaining new bondmen. The slave-
owning States of the ancient East carried on constant wars with a view to
conquering other peoples. The history of ancient Greece is full of wars between
separate city States, between metropolis and colonies, between Greek and
Oriental States. Rome carried on uninterrupted wars; at her height she
conquered the greater part of the lands known at that time. Not only the
warriors who had been taken prisoner, but also a considerable part of the
population of the conquered lands, were enslaved.
Provinces and colonies served as another source for adding to the numbers
of slaves. They supplied the slave-owners with living commodities as well as
with every other commodity. The slave trade was one of the most profitable
and flourishing branches of economic activity. Special centres of the slave trade
arose: fairs were arranged to which came traders and buyers from distant
countries.
The slave-owning mode of production opened broader opportunities for the
growth of productive forces than the primitive community. The concentration of
a large number of slaves in the hands of the slave-owning State and of
individual slave-owners made possible the use of simple co-operation of labour
on a large. scale: This is attested by the gigantic construction works which
were executed in antiquity by the peoples of China, India, Egypt, Italy, Greece,
Transcaucasia, Central Asia and others: irrigation systems, roads, bridges,
military fortifications, cultural monuments.
Social division of labour developed and expressed itself in the specialisation
of agricultural and handicraft production, thus creating conditions for raising
the productivity of labour.
In Greece slave labour was widely applied in handicraft. Large workshops
arose, ergasteria, in which there worked several dozen slaves at a time. Slave
labour was also used in building, in mining iron ore, silver and gold. In Rome
slave labour was widespread in agriculture. The R()man aristocracy owned
broad estates, latifundia, where hundreds and thousands of slaves worked.
These latifundia were created by the seizure of peasants lands and also of
unoccupied State lands.
The slave-owning latifundia, in consequence of the cheapness of slave
labour. and the utilisation of the advantages of simple co-operation, were able
to produce grain and other agricultural produce at lower cost than the small
farms of the free peasants. The small peasantry was squeezed out, fell into
slavery or swelled the ranks of the impoverished sections of the town
population, the lumpen-proletariat.
The contradiction between town and country, which had already arisen
during the transition from the primitive communal system to the slave-owning
system, grew deeper and deeper.
The towns became the centres where the slave-owning nobility, the
merchants, the usurers, the officials of the slave-owning State, all of whom
exploited the broad masses of the peasant population, were concentrated.
On the basis of slave labour the ancient world achieved considerable
economic and cultural development. But the slave-owning system could not
create the conditions for any further serious technical progress. Slave labour
was distinguished by extremely low productivity. The slave was not at all
interested in the results of his labour. The slaves hated their labour under the
yoke. Frequently they expressed their protest and indignation by spoiling the
implements of labour. Therefore the slaves were given only the crudest
implements, which it was difficult to spoil.
The technique of production founded on slavery remained at an exceedingly
low level. Despite a certain development of the natural and exact sciences,
they were hardly applied at all in production. Certain technical inventions were
used only for war purposes and in building. Through the several centuries of its
dominance the slave-owning mode of production went no further than the
application of manual implements borrowed from the small agriculturalist and
craftsman, and no further than simple labour co-operation. The basic motive
force remained the physical strength of men and cattle.
The wide application of slave labour allowed the slave owners to free
themselves from all physical labour and to transfer it completely to the slaves.
The slave-owners treated physical labour with scorn, considered it an
occupation unworthy of a free man and led a parasitic form of life. With the
development of slavery greater and greater numbers of the free population
broke away from any productive activity. Only a certain part of the slave-
owning upper class and of the other free population engaged in public affairs,
the sciences and the arts, which attained a considerable level of development.
The slave-owning system gave birth to the antithesis between mental and
physical labour, to the gap between them. The exploitation of slaves by slave-
owners is the main feature of the production relations of slave-owning society.
At the same time the slave-owning mode of production had its peculiarities in
various countries.
In the countries of the ancient East natural economy predominated to a still
greater degree than in the ancient world of Europe. Here slave labour was
widely applied in the State economies and those of the large slave-owners and
temples. Domestic slavery was greatly developed. Huge- masses of members
of peasant communities were exploited, as well as the slaves, in the agriculture
of China, India, Babylonia and Egypt. Here the system of enslavement for debt
acquired great importance. The member of the peasant community who did not
pay his debt to the usurer, or his rent to the landowner, was compelled to work
on their land for a definite time as a bond-slave.
In the slave-owning countries of the ancient East communal and State forms
of ownership of land were widespread. The existence of these forms of
property was linked with the system of cultivation based on irrigation. Irrigated
agriculture in the river valleys of the East demanded enormous labour
expenditure for the construction of dams, canals and reservoirs and the
draining of marshes. All this evoked the necessity of centralising the
construction and use of the irrigation systems over large territories. Artificial
irrigation is here the first condition of agriculture and this is a matter either for
the communes, the provinces or ,the central government. (Engels, Letter to
K. Marx, June 6, 1843, Marx and Engels, Selected Correspondence, 1846-95,
1934, English edition, p.67.) With the development of slavery the communal
lands were concentrated in the hands of the State. The king with unlimited
power became the supreme owner of the land.
The slave-owners State, concentrating in its hands the ownership of land,
imposed huge taxes on the peasants, compelled them to carry out different
types of duties and thereby put the peasants in a condition of servile
dependence. The peasants remained members of the rural community. But
with the concentration of the land in the hands of the slave-owning State, the
rural community was a firm base for oriental despotism, i.e., the unlimited
autocratic power of a despotic monarch. The priestly aristocracy played an
important part in the slave-owning States of the East. The great estates
belonging to the temples were maintained on the basis of slave labour.
Under the slave-owning system the slave-owners in all countries expended
unproductively by far the greater part of slave labour and its products: on the
satisfaction of personal fancies, the accumulation of, treasure, the construction
of military fortifications and armies, the erection and maintenance of luxurious
palaces and temples. In particular the Egyptian pyramids, which have been
preserved up to the present day, testify to the unproductive expenditure of
huge masses of labour. Only an insignificant part of slave labour and its product
was expended on the further expansion of production, which therefore
developed exceedingly slowly. Ruinous wars led to the destruction of
productive forces, the extermination of huge numbers of the peaceful
population and the ruin of the culture of entire States.
The basic economic law of the slave-owning system consists in the
production of surplus product to satisfy the demands of the slave-owners, by
means of the rapacious exploitation of the slaves, on the basis of full ownership
by the slave-owners of the means of production and of the slaves themselves,
by the ruining and enslaving of peasants and craftsmen, and also by
conquering and enslaving the peoples of other countries.

Further Development of Exchange. Merchants and

Usurers Capital

The slave-owning economy in the main preserved its natural character. In it

production was mainly for the direct consumption of the slave-owner, of his
numerous hangers-on and retainers, not with a view to exchange. All the
same, exchange gradually began to playa more noticeable part, particularly in
the period of the greatest development of the slave-owning system. In a
number of branches of production a certain part of the products of labour, was
regularly sold on the market-that is, was converted into commodities.
With the expansion of exchange the part played by money increased. Usually
there arose as money that commodity which was the most frequently
exchanged. Among many peoples, particularly among cattle-breeders, cattle
first served as money. Among others salt, grain or furs became money.
Gradually all other forms of money were squeezed out by metallic currency.
 Metallic currency first appeared in the countries of the ancient East. Money in the form of
bronze, silver and gold bars was already circulating here in the third to second millennia B.C.,
and in the form of coins from the seventh century B.C. In Greece in the eighth century B.C.,
iron money was current. In Rome even in the fifth to fourth centuries B.C. only copper money
was used. Later iron and copper money were replaced by silver and gold.

The Greek city States carried on quite far-flung trade, including trade with
the Greek colonies scattered along the shores of the Mediterranean and the
Black Sea. The colonies regularly supplied the basic labour force-slaves-and
certain forms of raw material and foodstuffs: hides, wool, cattle, grain and fish.
In Rome, as well as in Greece, apart from trade in slaves and other
commodities, trade in luxury objects played a great part. These commodities
were supplied from the East mainly in the shape of all sorts of tribute taken
from conquered peoples. Trade was connected with plunder, piracy and the
enslavement of colonies.
Under the slave-owning system money had already become not only a
means of buying and selling commodities; it had also come to serve as a
means for the appropriation of the labour of others by means of trade and
usury. Money expended with a view to appropriating surplus labour and its
product becomes capital, that is, a means of exploitation. Merchants and
usurers capital were historically the first forms of capital. Merchants capital is
capital engaged in the sphere of commodity exchange. Merchants buying up
and reselling commodities appropriated a considerable part of the surplus
product created by the slaves, small peasants and craftsmen. Usurers capital
is capital applied in the form of loans of money, means of production or objects
of consumption for the appropriation of the peasants and craftsmens surplus
labour by means of high interest rates. The usurers also granted money loans
to the slave-owning aristocracy, thus sharing in the surplus product that the
latter received.

Sharpening of the Contradictions of the Slave-Owning

Mode of Production

Slavery was an essential stage on mankinds road of development.

It was slavery that first made possible the division of labour between
agriculture and industry on a considerable scale, and along with this, the
flower of the ancient world, Hellenism. Without slavery, no Greek state, no
Greek art and science; without slavery, no Roman Empire. But without
Hellenism and the Roman Empire as a basis, also no modern Europe.
(Engels, Anti-Dhring, 1934, English edition, p. 203.)

On the bones of generations of slaves there arose a culture which was the
basis for mankinds further development. Many branches of knowledge-
mathematics, astronomy, mechanics, architecture-achieved considerable
development in the ancient world. The artistic objects which have corrie down
to us from antiquity, the works of literature, sculpture and architecture have
entered for ever into the treasury of human culture.
 The slave-owning system, however, concealed in itself insuperable
contradictions which led to its destruction. The slave-owning form of
exploitation constantly destroyed the basic productive force of this society, the
slaves. The struggle of the slaves against harsh forms of exploitation was more
and more frequently expressed in armed risings. An uninterrupted influx of
slaves and their cheapness were a condition of existence for slave-owning
economy. Slaves were mainly supplied by war. The mass of free small
producers, the peasants and craftsmen, formed the basis of the military power
of slave-owning society. They served in the armed forces and bore On their
shoulders the main burden of taxes essential for conducting war. But as a
result of the competition of large-scale production based on cheap slave labour,
and under the weight of burdens beyond their strength, the peasants and
craftsmen were ruined. The insoluble contradiction between large latifundia and
peasant farms continued to intensify.
The squeezing out of the free peasantry subverted not only the economic,
but also the military and political might of the slave-owning States, and
particularly Rome. Victories were replaced by defeats. Wars of conquest were
replaced by defensive ones. The source of the uninterrupted supply of cheap
slaves dried up. The negative aspects of slave labour appeared more and more
strongly. A general fall in production took place in the last two centuries of the
existence of the Roman Empire. Trade fell http confusion, formerly rich lands
became poor, the population began to decline, crafts perished and towns began
to be deserted.
The productive relations based on slave labour had turned into fetters for the
expanded productive forces of society. The labour of slaves, completely
uninterested in the results of production, had outlived itself. There had arisen
the historical necessity for the replacement of slave-owning production
relations by other production relations, which would change the situation in
society. of the main productive force, the labouring masses. The law of the
obligatory correspondence between production relations and the character of
the productive forces demanded the replacement of slaves by workers who
were to some extent interested in the results of their labour.
As large-scale slave-owning production became economically unprofitable
the slave-owners began to set free considerable groups of slaves whose labour
no longer brought them any income. Large estates were broken into small
plots. These plots were handed over on definite conditions, either to former
slaves who had been set free, or to formerly free citizens who were now
obliged to bear a number of duties for the benefit of the landowner. The new
tillers of the soil were bound to the plots of land, and could be sold together
with them. But they were no longer slaves.
This was a new social stratum of small-scale producers, occupying an
intermediary position between free and slave, and having a certain interest in
the results of their own labour. They were called coloni, and were the
predecessors of the medieval serfs.
Thus the elements of a new, feudal mode of production were born in the
womb of slave-owning society.

Class Struggle of the Exploited against the Exploiters.

Slave Revolts. Downfall of the Slave-Owning System
 The history of slave-owning societies in the countries of the ancient East, in
Greece and Rome shows that with the development of the slave-owning
economy the class struggle of the enslaved masses against their oppressors.
was intensified. Slave revolts were linked with the struggle of the exploited
small peasants against the slave-owning upper class, the large landowners.
The contradiction between small producers and large well-born landowners
gave birth already at an early stage in the development of slave-owning society
to a democratic movement among the free men which set itself the aim of
destroying debt bondage, the redivision of lands, the abolition of the
prerogatives of the landed aristocracy and the transfer of power to the demos
(that is, to the people).

Of the numerous slave risings in the Roman Empire that led by Spartacus (74-71 B.C.) was
particularly remarkable. The most vivid page in the history of the slaves struggle against the
slave-owners is linked with his name.
Slave risings flared up more than once throughout many centuries. Impoverished peasants
joined the slaves. These risings achieved particular force in the second to first centuries B.C.
and in the third to fifth centuries A.D. The slave-owners suppressed the risings with the fiercest
measures.

The risings of the exploited masses, primarily of the slaves, radically

undermined the former might of Rome. Blows from inside began more and
more to be interconnected with blows from outside. The inhabitants of
neighbouring lands who had been enslaved revolted in the fields of Italy, while
at the same time their fellow-tribesmen who had remained free stormed the
frontiers of the Empire, broke into its territories and destroyed Roman
supremacy. These circumstances hastened the downfall of the slave-owning
system in Rome.
The slave-owning mode of production achieved its greatest development in
the Roman Empire. The fall of the Roman Empire was also the fall of the slave-
owning system as a whole. The feudal system took the place of the slave-
owning system.

Economic Views of the Slave-Owning Period

The economic views of the slave-owning period were reflected in many literary works left by
poets, philosophers, historians, statesmen and public figures. In the view of these men, a slave
was considered not a person but a chattel in his masters hands. Slave labour was scorned. And
since labour became predominantly the lot of slaves, there followed scorn for labour in general,
as activity unworthy of a free person.
The code of laws of the Babylonian king Hammurabi (eighteenth century B.C.) provides
evidence of the economic views of slave-owning Babylonia. The code defends the property and
personal rights of the rich and noble slave-owners and landowners. According to the code
whoever concealed a runaway slave was punished with death. A peasant who did not pay his
debt to the moneylender, or his rent to the landowner, had to give his wife, son or daughter
into bond slavery until he had worked off the debt. In the ancient Indian collection The Code
of Manu social, religious and moral injunctions sanctifying slavery are expounded. According to
these laws a slave had no property. The law punished with death anyone who gave shelter to a
runaway slave.
The views of the ruling classes were reflected in religion. Thus, in India Buddhism became
widespread beginning from the sixth century B.C. Proclaiming acceptance of reality, non-
resistance to violence and humility before the ruling classes, Buddhism was a religion of use to
the slave-owning aristocracy which they used to strengthen their domination.
Even the outstanding thinkers of antiquity could not imagine the existence of society without
slavery. .For example, the Greek philosopher Plato (fifth to fourth centuries B.C.) wrote the first
Utopia in the history of mankind about an ideal social system. But even in his ideal State he
retained slaves. The labour of slaves, tillers of the soil and artisans, had to supply the means of
existence for the higher class of rulers and warriors.
In the eyes of the greatest thinker of antiquity, Aristotle (fourth century B.C.), slavery was
also an eternal and inevitable necessity for society. Aristotle greatly influenced the development
of thought in the ancient world and in the middle ages. Though he rose high above the level of
contemporary society in his scientific conjectures and anticipations, on the question of slavery
Aristotle remained a prisoner of the conceptions of his age. His views on slavery amounted to
the following: for the helmsman the rudder is an inanimate instrument, but the slave is an
animate instrument. If implements performed their work to order, if, for example, shuttles
wove of themselves, there would be no need for slaves. But since in economic life there existed
many occupations demanding simple unskilled labour, Nature had made wise provision, by
creating slaves. In Aristotles opinion Nature itself had ordained that some men should be
slaves and that others should rule them. Slave labour supplied free men with leisure for
perfecting themselves. Hence, he concluded, the whole art of the master consisted in knowing
how to use his slaves.
Aristotle gave to the science of management of resources the name oikonomia. In his
lifetime exchange, trade and usury were quite widely developed, but the economy basically
preserved its natural character, producing for consumption within its own framework. Aristotle
considered natural the acquisition of benefits only by means of agriculture and handicrafts; he
was a partisan of natural economy. However, Aristotle also understood the nature of exchange.
He found exchange with a view to consumption completely natural because usually people
have more of certain objects and fewer of others than is essential for the satisfaction of their
needs. He understood the necessity for money for exchange.
At the same time Aristotle considered that trade with a view to profit, and usury, were
reprehensible occupations. He pointed out that these occupations, as distinct from agriculture
and handicraft, knew no limits to the acquisition of wealth.
The ancient Greeks already had a certain conception of the division of labour and the part it
played in the life of society. Thus Plato envisaged division of labour as the basic principle of the
State system in his ideal republic.
The economic conceptions of the Romans also reflected the relations of the prevailing slave-
owning mode of production.
Roman writers and public men, expressing the ideology of the slave-owners, counted slaves
as simple implements of production; It is to the Roman encyclopaedist Varro (first century
B.C.) who composed, among a number of other books, a sort of handbook for slave-owners on
the conduct of agriculture, that we owe the well-known division of implements into (1) the
dumb (carts); (2) those which utter inarticulate sounds (cattle); and (3) those gifted with
speech (slaves). In giving this definition he was expressing views generally accepted among
slave-owners.
The minds of Rome, as well as of Greece, were concerned with the art of managing slaves.
Plutarch (first to second century A.D.), the historian of the Roman era, tells of the model
slave-owner Cato and how he bought slaves young that is at the age when, like puppies and
foals, they can be readily subjected to education and training. Later he says that among the
slaves he constantly invented methods of maintaining quarrels and disputes, for he considered
agreement among them dangerous and feared it.
In ancient Rome, especially in the later period, breakdown and decay of the economy
founded on the compulsory labour of slaves grew worse and worse. The Roman writer
Columella (first century A.D.) complained: The slaves do the greatest harm to the fields. They
lend the oxen on the side. They also pasture the other stock badly. They plough the land
poorly. His contemporary Pliny the Elder said that the latifundia have destroyed Italy and its
provinces.
Like the Greeks, the Romans considered normal the natural form of economy, in which the
master exchanges only his surpluses. Sometimes in the literature of that time high trading
profits and usurious rates of interest were condemned. In reality, however, the merchants and
usurers accumulated enormous fortunes.
 In the last period of the existence of the slave-owning system voices could be already heard
condemning slavery and proclaiming the natural equality of men. These views, understandably,
met with no sympathy among the ruling class of slave-owners. As for the slaves, they were so
crushed by their servitude, so downtrodden and ignorant, that they were unable to work out an
ideology of their own more progressive than the obsolete ideas of the slave-owning class. This
is one of the causes of the spontaneity and unorganised character of the slave revolts.
One of the sharp contradictions inherent in the slave-owning system was the struggle
between large and small land-holders. The impoverished peasantry put forward the demand for
the limitation of the landed property of the great slave-owners and the re-allocation of lands.
This was the essence of the agrarian reform for which the brothers Gracchi struggled (second
century B.C.).
In the period of the decline of the Roman Empire when an absolute majority of the
population of town and country, both slaves and free, saw no way out of the situation, there
developed a severe crisis in the ideology of slave-owning Rome.
A new religious ideology, Christianity, emerged on the basis of the class contradictions of the
dying Empire. The Christianity of that period expressed the protest of slaves, of the ruined
masses of the peasantry and craftsmen, and of declassed elements, against slavery and
oppression. On the other hand, Christianity reflected the mood of broad strata of the ruling
classes, who sensed the utter hopelessness of their situation. That is why, in the Christianity of
the decline of the Roman Empire, by the side of grim warnings to the rich and powerful, there
are also calls to humility and to seek salvation in life beyond the grave.
In the following centuries Christianity finally became the religion of the ruling classes, a
spiritual weapon for the defence and justification of the exploitation and oppression of the
labouring masses.

BRIEF CONCLUSIONS
(1) The slave-owning mode of production arose thanks to the growth of the
productive forces of society, the appearance of a surplus product, the origin of
private property in the means of production, including land, and the
appropriation of the surplus product by the owners of the means of production.
Slavery is the first and crudest form of the exploitation of man by man. The
slave was the full and unlimited property of his master. The slave-owner, at his
will, commanded not only the slaves labour, but also his life.
(2) The State first took shape with the rise or the slave-owning system. It
arose, as a result of the splitting of society into irreconcilably hostile classes, as
the machine for suppressing the exploited majority of society by the exploiting
minority.
(3) Slave-owning economy was in the main of a natural character. The
ancient world broke down into numerous separate economic units satisfying
their requirements by their own production. Trade was mainly in slaves and
luxury articles. The development of exchange gave rise to metallic currency.
(4) The basic economic law of the slave-owning mode of production consists
in the production of surplus product, to satisfy the demands of the slave-
owners, by the rapacious exploitation of the slaves on the basis of full
ownership by the slave-owners of the means of production and the slaves
themselves, by the ruining and enslaving of peasants and craftsmen, and also
by conquering and enslaving the peoples of other countries.
(5) A comparatively high culture (art, philosophy, the sciences) arose on the
basis of slavery. Its fruits were enjoyed by the small upper class of slave-
owning society. The social consciousness of the ancient world corresponded to
the mode of production based on slavery. The ruling classes and their
ideologists did not consider the slave a man. Physical labour, being the lot of
the slaves, was considered a shameful occupation, unworthy of a free man.
(6) The slave-owning mode of production caused an increase in the
productive forces of society compared with the primitive communal system.
But later the labour of the slaves, who were completely without interest in the
results of production, outlived its usefulness. The spread of slave labour and
the lack of any legal protection whatsoever for the slaves resulted in the
destruction of the basic productive force of society-the labour force-and the
ruin of the small free producers-the peasants and artisans. This predetermined
the inevitable downfall of the slave-owning system.
(7) Slave revolts shook the slave-owning system and hastened its
destruction. The feudal mode of production came to replace the slave-owning
mode of production; instead of the slave-owning form of exploitation there
arose the feudal form of exploitation, which gave some scope for the further,
development of the productive forces of society.
 CHAPTER III

THE FEUDAL MODE OF PRODUCTION

Rise of Feudalism
The feudal system existed, with particular features of one sort or another, in
almost all countries.

The era of feudalism covers a long period. In China the feudal system existed for more than
two thousand years. In Western Europe feudalism covers a number of centuries, from the time
of the fall of the Roman Empire (fifth century) to the bourgeois revolution in England
(seventeenth century) and in France (eighteenth century); in Russia from the ninth century to
the peasant reform of 1861; in Transcaucasia from the fourth century to the seventies of the
nineteenth century; among the peoples of Central Asia from the seventh or eighth centuries
right up to the victory of the proletarian revolution in Russia.
In Western Europe feudalism arose out of the breakdown of Roman slave-owning society, on
the one hand, and the decay of the tribal system of the conquering tribes, on the other; it was
established as a result of the interaction of these two processes.

Elements of feudalism, as has already been said, had originated in the womb
of slave-owning society in the form of the system of coloni. The coloni were
obliged to work the land of their master, the large landowner, to make him a
definite money payment or hand over a considerable share of the harvest, and
to fulfil various types of duty. Nevertheless, the coloni had more interest in
their labour than the slaves, since they had their own holdings.
Thus there arose new productive relations which achieved full development
in the feudal period.
Tribes of Germans, Gauls, Slavs and other peoples living in different parts of
Europe destroyed the Roman Empire. The slave-owners power was overthrown
and slavery fell. The large latifundia and handicraft workshops based on slave
labour broke down. The population of the former Roman Empire consisted of
large landowners (former slave-owners, who had adopted the system of
coloni), freed slaves, coloni, small peasants and artisans.
The conquering tribes, at the time of the subjugation of Rome, had a
communal system which was in decline. The village community, which the
Germans called the mark, played a great part in the social life of these tribes.
The land, except for the large landed possessions of the clan nobility, was
common property. The forests, heaths, pastures and ponds were used in
common. Fields and meadows were re-divided every few years among the
members of the community. Gradually, however, the land around the
homestead, and later also the ploughland, began to be inherited by separate
families. The distribution of land, the investigation of matters concerning the
community, the settlement of disputes between its members, were dealt with
by the community meeting and by the elders and judges elected by it. At the
head of the conquering tribes stood their military leaders who, together with
their retinues, held considerable tracts of land.
The tribes which conquered the Roman Empire acquired a great part of its
State lands and some part of the lands of the large proprietors. Forests,
meadows and pastures remained in common use, but the ploughland was
divided into separate holdings. Later the divided lands became the private
property of the peasants. Thus a broad stratum of independent small peasantry
was formed.
The peasants, however, were unable to preserve their independence for
long. Property inequality between different members of the village community
inevitably developed on the basis of private ownership of land and other
means of production. Well-to-do and poor families appeared among the
peasants. With the growth of property inequality members of the community
who had grown rich began to acquire power over the community. The land was
more and more concentrated in the hands of the rich families, the clan
aristocracy and military leaders. The peasants fell into personal dependence on
the large landowners.
The conquest of the Roman Empire hastened the break-up of the clan
system among the conquering tribes.
In order to maintain and strengthen their power over the dependent
peasants the large landowners had to reinforce the organs of State power.
Military leaders, relying on the clan aristocracy and the members of their
retinues, began to concentrate power in their hands and became kings-
monarchical rulers.
A number of new States headed by kings were formed on the ruins of the
Roman Empire. The kings generously handed out the land they had seized for
the lifetime and afterwards for the hereditary possession of their attendants,
who had to bear military service in return. The Church, which served as an
important support for the royal power, received much land. The land was
worked by peasants who now had to fulfil a number of duties for their new
masters. Huge landholdings passed into the hands of members of the royal
retinue and servants, the clerical authorities and the monasteries.
The lands distributed on such conditions were called feods (fiefs). Hence
comes the name of the new social structure, feudalism.
The gradual conversion of peasant land into the property of feudal lords and
the enserfment of the peasant masses (the process of feudalisation) took place
in Europe in the course of a number of centuries (from the fifth or sixth to the
ninth or tenth centuries). The free peasantry was ruined by incessant military
service, plunder and impositions. Turning for help to the large landowner, the
peasants converted themselves into his dependents. Frequently the peasants
were compelled to yield themselves into the protection of the feudal lord;
otherwise it was impossible for a defenceless man to exist in conditions of
ceaseless wars and bandit raids. In such cases property rights in the plot of
land passed to the feudal lord, and the peasant could work his plot only on
condition of fulfilling various duties for the lord. In other cases the royal
lieutenants and officials, by means of deceit and force, appropriated the land of
free peasants, making the latter acknowledge their power.
 In different countries the process of feudalisation took different courses, but
the essence of the matter was everywhere the same: the formerly free
peasants fell into personal dependence on the feudal lords who had seized their
land. Sometimes this dependence was weaker, sometimes stronger. In course
of time the differences in the position of former slaves, coloni and free
peasants disappeared, and they were all converted into a single mass of
peasant serfs. Gradually there was established the position which is described
by the medieval phrase: No land without its lord. (i.e.) without its feudal
master). The kings were the supreme landowners.
Feudalism was an essential stage in the historical development of society.
Slavery had outlived itself. In these circumstances the further development of
productive forces was only possible on the basis of the labour of the mass of
dependent peasantry, possessing their own holdings, their own implements of
production and having some interest in labour.
As the history of mankind testifies, however, it is not obligatory that every
people should pass through all stages of social development. For many peoples
conditions arise under which they have the possibility of missing one stage of
development or another and of passing immediately to a higher stage.
In Russia patriarchal slavery arose when the primitive community was
breaking down. The development of society here, however, went in the main
not along the road of slave-owning, but of feudalisation. The Slavonic tribes,
even when the clan system was predominant among them, beginning from the
third century A.D., attacked the Roman slave-owning Empire, struggled to free
the towns of the northern Black Sea coast which were in its power and played
a great part in the overthrow of the slave-owning system. The transition from
the primitive community to feudalism-took place in Russia at a time when the
slave-owning system had long since fallen in the countries of Western Europe,
and when feudal relations had been stabilised there.
The village community among the Eastern Slavs was called verv or mir. The
community had meadows, forests and ponds in common use, but the
ploughland began to pass into the possession of separate families. An elder
was at the head of the community. The development of private landowning led
to the gradual breakdown of the village communities. The elders and tribal
princes seized the land. The peasants (smerds) were at first free members of
the community, but later fell into dependence on the large landowners
(boyars).
The Church became the largest feudal owner. Grants by the princes,
endowments and legacies made it the possessor of broad lands and the richest
estates of those times. In the period of the formation of the centralised Russian
State (fifteenth to sixteenth centuries) t9-e Grand Princes and Tsars began to
place (Russian, pomeshchat) their attendants and serving people on the land,
i.e., to give them land and peasants on condition of their owing military
service. Hence the names pomeste (fee or estate) and pomeshchik (lord of the
manor).
At that time the peasants were not yet finally bound to the landowner and
the land; they had the right to transfer from one lord to another. At the end of
the sixteenth century the lords, with a view to increasing the production of
grain for sale, intensified their exploitation of the peasants. In connection with
this the State in 1581 deprived the peasants of the right of transfer from one
landlord to another. The peasants were completely bound to the land belonging
to the lords and were thus converted into serfs.
In the period of feudalism agriculture played a predominant part and tillage
was its most important branch. Gradually, in the course of a number of
centuries, methods of grain-growing improved and market gardening, fruit-
growing, vine-growing and butter-making developed.

In the early period of feudalism the fallow system predominated, but in forested regions the
slash and burn system of tillage predominated. A plot of land was sown several years
consecutively with some crop until the soil was exhausted. Then they transferred to another
plot. Later an advance to the three-field system took place; in this the arable was divided into
three fields of which in turn, one was used for winter crops, the second for spring crops and the
third remained fallow. The three-field system began to spread in Western Europe between the
ninth and the tenth and in Russia from the eleventh and twelfth centuries onwards: It
remained dominant throughout many centuries, being preserved until the nineteenth century
and, in many countries, even to the present time.

Agricultural equipment in the early period of feudalism was poor. The

primitive wooden plough (sokha) with iron share, the sickle, scythe and spade
served as implements of labour. Later, the iron plough and harrow began to be
used. The grinding of grain was for a long time carried out by hand, until wind
and water mills became widespread.

Production Relations of Feudal Society. Exploitation of

Peasants by Feudal Lords

The property of the feudal lords in land and their incomplete property rights
over the peasant serf were the basis of the production relations of feudal
society. The peasant serf was not a slave. He had his own holding. The feudal
lord could no longer kill him, but he could sell him. By the side of the property
of the feudal lords there also existed the individual property of peasants and
craftsmen in their implements of production and in their private holdings,
based on personal labour.
Large-scale feudal landed property was the basis for the exploitation of
peasants by the lords. The feudal lord sown demesne occupied part of the land.
The feudal lord granted another part of the land on extortionate conditions for
use by the peasants. The lord allotted land to the peasants to hold, hence the
expression holding. The peasant holding was the means by which the lord
secured his labour force. With hereditary possession of his holding, the peasant
was obliged to work for the lord to till the lords soil with the help of his own
implements and stock, or else to give the lord his surplus product in kind or in
money.
Such a system of economy inevitably presupposed the peasants personal
dependence on the landlord-a system of extra-economic compulsion. If the
lord had not had direct power over the person of the peasant he would not
have been able to compel to work for him a man who possessed land and tilled
on his own account. (Lenin, Development of Capitalism in Russia, Works,
fourth Russian edition, vol. III, p. 159.).
The peasant serfs working time was divided into necessary and surplus
time. During the necessary time, the peasant created the product necessary
for his own existence and the existence of his family. During the surplus time
he created the surplus product which was appropriated by the lord. The surplus
labour of the peasant who worked on the lords demesne, or the surplus
product created by the peasant in his own holding and appropriated by the
lord, constitute feudal land-rent.
Feudal rent frequently swallowed up not only the peasants surplus labour,
but also part of his necessary labour. The basis of this rent was feudal
ownership of land, linked with the direct domination of the feudal lord over the
peasants dependent on him.
Under feudalism there existed three forms of land-rent: labour-rent, rent in
kind and money-rent. In all these forms of rent the exploitation of the peasants
by the landlords stood out in unconcealed form.
Labour-rent, or week-work (barshchina), predominated in the early stages
of feudalisms development. Under the system of week-work the peasant
worked for a specified part of the week, three or more days, with his own
implements of production (plough, draught animals, etc.) on his masters
estate and the remaining days worked on his own holding. Thus by week-work
the necessary and surplus labour of the peasant were clearly distinguished in
time and space. The sphere covered by week-work was exceedingly broad. The
peasant ploughed, sowed and gathered the harvest, pastured cattle, worked as
a carpenter, chopped timber for the lord, and carted agricultural produce and
building materials using his own horse.
Under the week-work system the peasant serf was interested in raising the
productivity of labour only while working on his own holding. When working on
the lords land the peasant had no such interest. The feudal lord kept overseers
who compelled the peasants to work.
In the course of further development labour-rent was replaced by rent in
kind, or quitrent paid in produce. Under this system the peasant was obliged to
deliver regularly to the lord a definite quantity of grain, cattle, poultry and
other agricultural produce. Most frequently the quitrent was combined with
remnants of week-work duties, i.e., with the peasants work on the lords
demesne.
With rent in kind the peasant expended the whole of his labour both
necessary and surplus, according to his own discretion. Necessary and surplus
labour were no longer divided as clearly as with labour-rent. Here the peasant
became relatively more independent. This created a certain stimulus to further
raising the productivity of labour.
At a later stage of feudalism, when exchange had become comparatively
widespread, money-rent arose, or quitrent in money. Money-rent is
characteristic of the period of the breakdown of feudalism and the appearance
of capitalist relations. Various forms of feudal-rent often existed
simultaneously.

In all these forms of ground-rent, whether labour-rent, rent in kind, or

money-rent (as a mere change of form of rent in kind), the rent-paying
party is always supposed to be the actual tiller and possessor of the land,
whose unpaid surplus labour passes directly into the hands of the landlord.
(Marx, Capital, Kerr edition, vol. III, p. 932.)
 Striving to increase their income, the feudal lords imposed every sort of
exaction on the peasant. In many cases they had monopolistic possession of
mills, smithies and other enterprises. The peasant was compelled to use them
for exceedingly high payments in kind or money. Apart from quitrent in kind or
money paid to the feudal lord, the peasant had to pay all sorts of imposts to
the State, local taxes and, in some countries, a tithe, i.e., a tenth of the
harvest to the Church.
Thus the labour of peasant serfs was the basis of the existence of feudal
society. Peasants not only grew agricultural produce. They worked in the feudal
lords estates as craftsmen, erected castles and monasteries and made roads.
Towns were built by the hands of peasant serfs.
The economy of the feudal lords, particularly in the early stages of its
development, was basically a natural economy. Each feudal estate, consisting
of the lords demesne and the villages belonging to him, lived an isolated
economic life, rarely engaging in exchange. The requirements of the feudal lord
and his family, and the needs of the numerous house hold were at first
satisfied by the produce from the seigniorial economy and supplied by the
peasants paying quitrent. Fairly large estates had a sufficient quantity of
craftsmen, mostly among the household serfs. These craftsmen made clothing
and footwear, made and repaired weapons, hunting equipment and agricultural
implements, and erected buildings.
The peasant economy was also a natural one. The peasants engaged not
only in agricultural labour but also in domestic handicraft, mainly working up
raw materials produced in their holdings-spinning, weaving, making footwear
and farm implements.
For a long time a characteristic of feudalism was the combination of
agriculture, as the basic branch of the economy, with domestic handicraft,
which was auxiliary to it. The few imported products without which it was
impossible to manage, as for example, salt and articles of iron, were at first
supplied by wandering traders. Later, in connection with the growth of towns
and handicraft, the division of labour and development of exchange between
town and country made a great step forward.
The exploitation of dependent peasants by feudal lords was the main feature
of feudalism among all peoples. However, in particular countries the feudal
system had its own special features. In countries of the East feudal relations
were for a long time combined with slave relations. Thus it was in China, India,
Japan and a number of other countries. Feudal State property in land was of
great significance in the East. For example, in the period of the Bagdad
Khalifate, under the dominance of the Arabs (particularly in the eighth to ninth
centuries A.D.), a large section of the members of peasant communities lived
on the Khalifs land and paid feudal-rent direct to the State. Feudalism in the
East was also characterised by the vitality of patriarchal clan relations which
were utilised by the feudal lords as a means of intensifying exploitation of the
peasants.
In the agricultural lands of the East, where irrigated agriculture is of decisive
significance, the peasants were in bondage to the feudal lords because not only
the land but also the water resources and irrigation works were the property of
the feudal State or of individual feudal lords. Among nomad peoples the land
was used as pasture. The size of feudal land-owning was determined by the
quantity of cattle. The large cattle-owning feudalists were, in fact, large-scale
owners of pasture. They held the peasantry in dependence and exploited them.
The basic economic law of feudalism consisted in the production of surplus
product to satisfy the demands of the feudal lords, by means of the
exploitation of dependent peasants on the basis of the ownership of the land
by the feudal lords and their incomplete ownership of the workers in
production-the serfs.
The Medieval Town. Craft Guilds. Merchant Guilds

Towns had already arisen under the slave-owning system. Such towns as
Rome, Florence, Venice and Genoa in Italy; Constantinople and Alexandria in
the Near East; Paris, Lyons and Marseilles in France; London in England;
Samarkand in Central Asia, and many others, were inherited by the Middle
Ages from the epoch of slavery. The slave-owning system fell, but towns
remained. The large slave-owning workshops broke down, but the crafts
continued to exist.
In the period of the early Middle Ages the towns and crafts developed slowly.
Town craftsmen produced articles for sale, but a large part of the objects of
consumption which they needed they obtained from their own holdings. Many
of them had small ploughlands, gardens and cattle. The women engaged in the
spinning of flax and wool to make clothing. This showed the limited extent of
markets and exchange.
In the, countryside the working up of agricultural raw material was at first a
subsidiary occupation of the husbandman. Then, from among the peasants
there began to emerge craftsmen who served their own village. The
craftsmens productivity of labour increased. It became possible to produce
more articles than were necessary for the feudal lord or the peasants of one
village. The craftsmen began to settle around feudal castles, at the walls of
monasteries, in large villages and other trading centres. Thus, gradually,
usually on the waterways, new towns arose (in Russia, for example, Kiev,
Pskov, Novgorod, Vladimir). In the course of time crafts became a more and
more profitable business. The skill of the craftsman was perfected. The feudal
lord began to buy the product of handicraft from the townsmen. He was no
longer satisfied with the work of his own serfs. The more developed crafts were
finally isolated from agriculture.
The towns which had arisen on the lands of lay and clerical feudal lords were
subject to their authority. Townsmen owed a number of duties to the feudal
lord, paid him quitrent in kind or money, and were subject to his administration
and court. The town population very soon began the struggle for freedom from
feudal dependence. Partly by force, partly by means of purchase, the towns
obtained for themselves the right of self-administration, holding courts, minting
coinage and collecting taxes.
The town population consisted mainly of craftsmen and traders. In many
towns serfs fleeing from their landlords found refuge. The town acted as the
centre of commodity production, as distinct from the countryside where natural
economy prevailed. The growth of competition from the fugitive serfs who had
crowded into the towns, the struggle against exploitation and oppression by
the feudal lords, caused the craftsmen to unite into guilds. The guild system
existed in the feudal period in almost all countries.
 Guilds arose in Byzantium and Italy in the ninth and tenth centuries, and later in the whole
of Western Europe and Russia. In the countries of the East (Egypt, China), and in the towns of
the Arab Khalifate guilds arose even earlier than in the European countries. The guilds united
the town craftsmen of one specific trade or several similar ones. Only the master craftsmen
were full members of the guilds. The master craftsmen had a small number of journeymen and
apprentices. The guilds carefully preserved the exclusive right of their members to engage in
that craft and regulated the process of production: they laid down the length of the working
day, the number of journeymen and apprentices with each master defined the quality of raw
materials and finished products and their prices, and frequently purchased raw material in
common. Methods of work established by long tradition were obligatory for all. Strict regulation
had as its aim the prevention of any single master from raising himself above the others. Apart
from this the guilds served as mutual aid organisations.

The guilds were a feudal form of craft organisation. In the first period of
their existence they played a certain positive part in assisting the strengthening
and development of urban crafts. However, with the growth of commodity
production and the expansion of the market, the guilds gradually became a
brake on the development of productive forces.
The strict regulation of craft production by the guilds fettered the craftsmens
initiative and hindered the development of technique. In order to limit
competition the guilds began to create all sorts of hindrances to those wishing
to receive the rights of a master. For the apprentices and journeymen, whose
numbers had considerably increased, the possibility of becoming independent
masters had practically ceased. They were compelled to remain for their whole
life in the position of hired wage workers. In, these conditions the relations
between a master and his subordinates lost their former more or less
patriarchal character. The masters intensified the exploitation of their
subordinates, making them work fourteen to sixteen hours a day for
insignificant pay. The journeymen began to unite into secret brotherhoods to
defend their interests. The guilds and town authorities persecuted the
journeymens brotherhoods in every way.
The richest section of the town population were the merchants. Trading
activity developed both in the towns surviving from the period of slavery and in
the towns which arose under feudalism. The organisation of guilds in the crafts
found their counterpart in the organisation of guilds in trade. Merchant guilds in
the feudal period existed almost everywhere. In the East they are known from
the ninth century, in Western Europe from the ninth or tenth century, and in
Russia from the twelfth century. The basic task of the merchant guilds was the
struggle with competition from outside merchants, the regulation of weights
and measures, the defence of merchants rights from the infringements of the
feudal lords.

In the ninth to tenth centuries there already existed considerable trade between the
countries of the East and Western Europe. Kievan Rus1 took an active part in this trade. The
Crusades (eleventh to thirteenth centuries) played a great part in the expansion of trade,
opening the Near Eastern markets for Western European merchants. A flood of gold and silver
from the East swept into Europe. Money began to appear in places where it had formerly not
been used. The Italian towns, particularly Genoa and Venice, which carried the crusaders to the
East in their trading vessels and supplied them with provisions, took a direct part in the
conquest of Eastern markets.
 For a long time the Mediterranean ports were the main centres of the trade linking Western
Europe with the East. But apart from this, trade developed widely in the north German and
Netherland towns scattered along the trade routes of the North and Baltic Seas. Here in the
fourteenth century there arose a commercial union of towns, the German Hansa, which united
in the following two centuries about eighty towns of various European countries. The Hanseatic
League carried on trade with England, Scandinavia, Poland and Russia. In exchange for the
__________
1
This word was the description of the ancient Russian State, centred on Kiev, which existed
for several centuries until its overthrow by the Mongol conquest in the mid-thirteenth century-
Editor, English edition.
produce of West European handicraft-Flemish and English cloth and linen, German metal
articles, French wines-they exported from the north-eastern districts of Europe furs, hides, fats,
honey, grain, timber, pitch, linen and some handicraft products. From the countries of the East
merchants brought spices, pepper, cloves, nutmegs, perfumes, dyes, cotton and silk fabrics,
carpets and other commodities.
In the thirteenth to fourteenth centuries the Russian towns of Novgorod, Pskov and Moscow
carried on extensive trade with Asia and Western Europe. Novgorod merchants, on the one
hand, traded with the peoples of the North (the coast of the Arctic Ocean and the Trans-Ural
area) and, on the other hand, carried on regular trade with Scandinavia and Germany.

The growth of towns and development of trade greatly influenced the feudal
countryside. The economy of the feudal lords began to be drawn into the
market. In order to purchase luxury objects and articles of town crafts the
feudal lords needed money. In connection with this it was convenient for the
feudal lords to transfer. the peasants from week-work and quitrent in kind to
money quitrent. Feudal exploitation was still further intensified with the
transfer to money quitrents. The contradiction between town and country
which had arisen under slavery became still more acute.

Classes and Estates of Feudal Society. The Feudal Hierarchy

Feudal society was divided into two basic classes, feudal lords and peasants.
Feudal society represented a division of classes under which the vast majority-
the peasant serfs-were completely subjected to an insignificant minority-the
landlords, who owned the land. (Lenin, The State, Selected Works, English
edition, vol. XI, p. 651.)
The class of feudal lords was not a uniform whole. Petty feudal lords paid
tribute to those more powerful, helped them in war, but on the other hand took
advantage of their patronage. The patron was called the baron or seigneur,
and the one patronised the vassal (vavassar). The barons (seigneurs), in their
turn, were vassals of still greater barons or lords (tenantsin-chief). Thus the
feudal hierarchy was formed.
As the ruling class, the feudal lords stood at the head of the State. They
formed one estate, the baronage (nobility, lords). The lords held the
honourable position of first estate and had wide political and economic
privileges.
The clergy (Church and monastic) was also a very large landowner. It held
extensive lands with a numerous dependent and serf population and was the
ruling estate together with the nobles.
The broad base of the feudal ladder was the peasantry. The peasants were
subordinate to the landowner and were under the supreme power of the most
powerful feudal lord, the king. The peasantry was an estate without political
rights. The landlords were able to sell their serfs and made wide use of this
right. The serf-owners subjected the peasants to physical punishment. Lenin
called serfdom serf slavery. The exploitation of peasant serfs was almost as
cruel as the exploitation of slaves in the ancient world. Nevertheless, the serf
could work part of the time on his own holding and could, to a certain degree,
be independent.

The contradiction between feudal lords and peasant serfs was the basic class
contradiction of feudal society. The struggle of the exploited peasantry against
the feudal lords was carried on throughout the whole period of feudalism and
assumed particular intensity at the end of this period, when serf exploitation
had been intensified to extremes.
In the towns freed from feudal dependence power was in the hands of the
rich townsmen-merchants, usurers, owners of town lands and large house-
owners. The artisans of the various crafts who formed the main mass of the
town population, often stood out against the town nobility, winning their
participation in the town administration together with the town aristocracy. The
small craftsmen and journeymen struggled against the master craftsmen and
merchants who were exploiting them.
By the end of the feudal period the town population was already considerably
stratified. On the one hand, there were rich merchants and master craftsmen,
on the other a broad mass of journeymen and apprentices, the town poor. The
lower classes of the towns entered into the struggle against the united forces
of the town nobility and feudal lords. This struggle fused into a single stream
with the struggle of the peasant serfs against feudal exploitation.
The kings (in Russia the Grand Princes and later the Tsars) were considered
the holders of supreme power. Beyond the boundaries of their own holdings,
however, the significance of the kings power in the period of early feudalism
was insignificant. Frequently this power remained nominal. The whole of
Europe was divided into a multitude of large and small States. The large
feudatories were complete masters of their own possessions. They issued laws,
saw to their. execution, held courts of justice, inflicted penalties, maintained
their own forces, raided their neighbours and did not always refrain from
highway robbery. Many of them independently minted coinage. The smaller
feudal lords also had exceedingly wide rights in respect of the people under
their power; they tried to vie with the great lords.
In the course of time feudal relations created an exceedingly confused tangle
of rights and obligations. Endless disputes and quarrels arose between the
feudal lords. They were usually decided by force of arms in internecine wars.

Development of the Productive Forces of Feudal Society

In the feudal period a higher level of productive forces was achieved

compared with the period of slavery.
In the sphere of agriculture the technique of production was improved; the
iron plough and other iron implements of labour were used more extensively.
New branches of cultivation arose; vine-growing, wine-making and market
gardening developed considerably. Livestock husbandry grew and particularly
horse-breeding, which was linked with the feudal lords military service; butter-
making developed. Sheep-breeding became widespread in a number of
regions. Meadows and pastures were extended and improved.
Gradually, the implements of labour of the craftsmen and methods of
processing raw material were improved. Former crafts began to become
specialised. Thus, for example, the blacksmith had formerly produced all metal
articles. In the course of time the crafts of the armourer, nail-maker, cutler and
locksmith separated from the trade of blacksmith, and the craft of the
shoemaker and the saddlemaker were separated from the craft of the leather
worker. In the sixteenth to seventeenth centuries in Europe the spinning wheel
became wide-spread. In 1600 the ribbon loom was invented.
The improvement of the smelting and working of iron was of decisive
significance in perfecting the implements of labour. At first iron was produced
by an exceedingly primitive method. In the fourteenth century the water-wheel
was first used to work bellows for the blast, and heavy hammers to crush the
ore. With the increased draught in the furnaces, instead of a malleable mass, a
molten mass, cast iron, was obtained. With the application of gunpowder in
warfare and the appearance of firearms (in the fourteenth century) much metal
was required for cannon balls; from the beginning of the fifteenth century they
began to be cast from pig-iron. More and more metal was needed for the
production of agricultural and other implements. In the first half of the fifteenth
century the first blast furnaces appeared. The invention of the compass helped
the further development of navigation and seafaring. The invention and spread
of printing was of great significance.

China had achieved a considerable development of its productive forces and culture by the
sixth to eleventh centuries, in many respects surpassing the Europe of that time. The Chinese
were the first to invent the compass, gunpowder, writing-paper and a very simple form of
printing.

The development of the productive forces of feudal society more and more
clashed with the narrow framework of feudal production relations. The
peasantry, under the yoke of feudal exploitation, were in no condition to
increase further the output of agricultural produce. The productivity of unfree
peasant labour was exceedingly low. In the town the growth of the craftsmans
productivity of labour came up against the obstacles created by guild statutes
and rules. The feudal system was characterised by the slow rate of
development of production, by routine and by the authority of tradition.
The productive forces which had grown up in the framework of feudal society
demanded new relations of production.

The Birth of Capitalist Production in the Womb of the Feudal

System. The Role of Merchant Capital

In the feudal period commodity production gradually developed, town

handicrafts expanded and peasant economy was more and more drawn into
exchange.
Production by small craftsmen and peasants, based on private property and
personal labour creating products for exchange, is called simple commodity
production.
 As has already been said a product made for exchange is a commodity.
Different commodity producers expend on the production of the same
commodities an unequal quantity of labour. This depends on the different
conditions in which they have to work: commodity producers possessing
improved implements expend on the production of one and the same
commodity less labour in comparison with other commodity producers. In
addition to differences in the implements of labour, differences in strength,
dexterity, the skill of the worker and so on have their effect. The market,
however, is not concerned in what conditions and with what implements one
commodity or another is produced. For identical commodities on the market
one and the same amount of money is paid independent of those individual
conditions of labour in which they were produced.
Therefore, commodity producers whose individual labour expenditure,
because of worse conditions of production, are higher than average cover only
part of these costs when selling their commodities and ultimately are ruined.
On the other hand, commodity producers whose individual labour expenditure
thanks to better conditions of production are lower than average, are in an
advantageous position when selling their commodities, and grow rich. This
strengthens competition. A differentiation takes place among small commodity
producers. The majority of them become more and more impoverished, an
insignificant section grow rich.
The divided condition of the country under feudalism was a great hindrance
in the way of the development of commodity production. The feudal lords
established at will dues on imported goods, exacted tribute for passage
through their possessions, and thus created serious obstacles to the
development of trade. The requirements of trade and the economic
development of society in general evoked the necessity of abolishing feudal
separatism. The growth of handicraft and agricultural production, the
development of the social division of labour between town and country, led to
the intensification of economic links between different districts within the
country and to the formation of a national market. The formation of a national
market created the economic preconditions for the centralisation of State
power. The nascent town bourgeoisie was concerned to remove feudal
obstacles and supported the creation of a centralised State.
The kings, relying on the broader stratum of non-noble landowners (gentry),
on the vassals of their vassals and also on the rising towns, dealt the feudal
nobility decisive blows and strengthened their own dominance. They became
not only nominal, but also effective sovereigns in the State. Large national
States emerged in the form of absolute monarchies. The overcoming of feudal
separatism and the creation of centralised State power facilitated the
appearance and development of capitalist relations.
The formation of a world market was also of great significance for the rise of
the capitalist order.

In the second half of the fifteenth century the Turks seized Constantinople and the whole of
the eastern part of the Mediterranean Sea. The most important artery along which passed the
trade routes between Western Europe and the East was cut. In the search for the sea route to
India, Columbus discovered America in 1492; while in 1498 Vasco da Gama, having sailed
round Africa, discovered the sea route to India.
As a result of these discoveries the focal point of European trade moved from the
Mediterranean Sea to the Atlantic Ocean, the bulk of trade, passed to the Netherlands, England
and France. Russia played a noticeable role in European trade.

With the rise of world trade and a world market handicrafts were no longer
in a position to satisfy the growing demand for goods. This hastened the
transition from small-scale artisan production to large-scale capitalist production,
based on the exploitation of wage-workers.
The advance from the feudal mode of production to the capitalist was made
in two ways: on the one hand; the differentiation among the small commodity
producers gave birth to capitalist entrepreneurs; on the other hand, merchant
capital, through the merchants, directly subordinated production to itself.
The guilds were able to limit competition and differentiation among the
craftsmen so long as commodity production was little developed. With the
development of exchange, competition became stronger and stronger. The
masters working for a wider market in part obtained the alteration of guild
restrictions, and in part simply evaded them. They lengthened the working day
of the journeymen and apprentices, increased their number and applied more
productive methods of labour. The richest master craftsmen gradually became
capitalists, while the poorer masters, apprentices and journeymen became
wage-workers.
Merchant capital assisted the rise of capitalist production by breaking down
the natural economy. Merchant capital first appeared as an intermediary in the
exchange of the commodities of the small producers-the craftsmen and the
peasants-and in the realisation by the feudal lords of part of the surplus
product which they appropriated. Later, the merchant began to buy up
regularly from the small producers the commodities they had made and then to
resell them on a wider market. The merchant became an engrosser. With the
growth of competition and the appearance of the engrosser the position of the
mass of the craftsmen radically changed. The impoverished masters were
compelled to turn for help to the trader or engrosser, who loaned them money
and raw materials on condition that they should sell him the finished articles at
a pre-arranged low price. Thus, the small producers fell into economic
dependence on merchant capital.
Gradually many impoverished masters found themselves dependent in this
way on the rich engrosser. He distributed raw material to them-for example,
thread to be worked up into cloth for a definite payment-and thus became a
putter-out.
The impoverishment of the craftsman resulted in the engrosser now
supplying him not only with raw materials, but also with implements of labour.
Thus the craftsman was deprived of the last semblance of independent
existence, and was finally converted into a wage-worker, while the engrosser
was becoming an industrial capitalist.
The craftsmen of yesterday, gathered in the capitalists workshop, carried
out uniform work. Soon, however, it was discovered that certain of them were
more successful with one operation, others with another. Therefore it was more
advantageous to entrust to each one just that part of the work at which he was
most skilful. Thus, in the workshops with a fairly considerable number of
workers division of labour was gradually introduced.
Capitalist enterprises using wage-workers who worked by hand on the basis
of division of labour were called manufactories.1

The first manufactories already appeared in the fourteenth and fifteenth centuries in
Florence and some medieval city republics of Italy. Then, in the sixteenth to eighteenth
centuries, manufactories in various branches of production-cloth, linen, silk, watchmaking,
arms and glass-spread in all European countries.
In Russia manufactories began to arise in the seventeenth century. At the beginning of the
eighteenth century under Peter I they began to develop at faster rates. Among them were
arms, cloth, silk and other manufactories. Iron foundries, mines and salt works were created in
the Urals.
_____________
1
Manufacture literally means production by hand.

As distinct from the West European factories, which were based on wage labour, Russian
enterprises in the seventeenth to eighteenth centuries, while employing some free wage labour,
in the main employed the labour of peasant serfs and bound workers. Manufactories based on
free wage labour began to become widespread from the end of the eighteenth century. This
process was particularly intensified in the last decades before the abolition of serfdom.

The process of the breakdown of feudal relations was also taking place in the
countryside. With the development of commodity production the power of
money grew. The feudal serf-owners. substituted money payments for the
peasants payments in kind. The peasants had to sell the products of their
labour and pay the feudal lords the money they had obtained. Chronic need of
money appeared among the peasants. Engrossers and usurers made use of
this to make the peasants their bondmen. Feudal oppression intensified and
the position of the serfs deteriorated.
The development of money relations gave a great impetus to the
differentiation of the peasantry, i.e., its stratification into different social
groups. The overwhelming majority of the peasantry became impoverished,
stifled from overwork and were ruined. Side by side with this kulak land-
grabbers began to appear m the countryside, exploiting their fellow-villagers by
means of loans at extortionate rates and buying up from them agricultural
produce, cattle and farm equipment at ruinous prices.
Thus, capitalist production came into existence in the womb of the feudal
system.

Primitive Capital Accumulation. Forcible Seizure of Peasant

Lands

Capitalist production presupposes two basic conditions: one, the presence of

numbers of propertyless people, personally free and at the same time deprived
of the means of production and livelihood and, therefore, compelled to hire
themselves out for work to the capitalists; and two, the accumulation of the
wealth in money necessary to create large capitalist enterprises.
We have seen that capitalism drew its sustenance from small commodity
production based on private property, with its competition bringing enrichment
to the few and ruin to the majority of small producers. The slowness of this
process, however, did not correspond to the requirement of the new world
market created by the great discoveries of the end of the fifteenth century. The
rise of the capitalist mode of production was hastened by the application of the
crudest methods of violence by the large landowners, bourgeoisie and the
State power which was in the hands of the exploiting classes. Force, in Marxs
expression, played the part of the midwife, hastening the birth of the new
capitalist mode of production.
Some bourgeois historians idyllically depict the history of the rise of the
capitalist and working classes. In immemorial times, they assert, there existed
a group of assiduous and careful men who accumulated wealth by their labour.
On the other hand, there existed a number of lazy-bones and idlers who
squandered all their substance and were converted into propertyless
proletarians.
These fables of the defenders of capitalism have no connection with reality.
In fact, the formation of the mass of propertyless people, the proletariat, and
the accumulation of wealth in the hands of the few took place by means of the
forcible deprivation of the small producers of their means of production. The
process of the separation of the producers from the means of production (the
land, implements of production, and so on) was accompanied by an endless
succession of acts of plunder and cruelty. This process is called primitive capital
accumulation since it preceded the creation of large-scale capitalist production.
Capitalist production achieved considerable development first of all in
England. From the end of the fifteenth century there took place in that country
an agonising process of the forcible expulsion of the peasants from the land.
The increased demand for wool from the large cloth manufactories, which
arose first in Flanders and then in England itself, gave the direct impetus to
this. The landlords began to raise large flocks of sheep. Pastures were needed
for sheep-raising. The feudal lords drove off the peasants in masses from the
places they occupied, seized the lands which had been in their permanent
possession, and converted the arable into pastures.
The expulsion of the peasants from the land was carried out by various
means, and primarily by means of the open seizure of common lands. The
landlords enclosed these lands, destroyed the peasant homes and forcibly
expelled the peasants. If the peasants attempted to get back the land illegally
seized from them, the armed force of the State came to the help of the
landlord. The State power began to issue laws in the eighteenth century on
enclosure, justifying the plundering of the peasants.
The ruined and plundered peasants formed innumerable crowds of indigent
beggars who filled the towns, villages and roads of England. Having no means
of existence they became beggars. The State authority issued bloody laws
against those who had been expropriated. These laws were distinguished by
their exceptional ferocity. Thus, in the reign of the English king Henry VIII
(sixteenth century), 72,000 people were executed for vagabondage.
In Tsarist Russia, which entered the road of capitalist development later than
other European countries, the separation of the producer from the means of
production was effected in the same ways as in other countries. In 1861 the
Tsarist government, under the influence of peasant risings was compelled to
abolish serfdom.

This reform was a gigantic plundering of the peasants. The landlords seized two-thirds of the
land, leaving only one-third for the use of the peasants. The most convenient lands, and also in
a number of cases the pastures, ponds, roads to the fields and so on which were used by the
peasant, were cut off by the landlords. In the hands of the landlords the lands cut off by the
landlords became a means of imposing a new bondage on the peasants, compelled to rent
these lands from the landlords on the most burdensome conditions. The law while announcing
the personal freedom of the peasants, temporarily preserved week-work and quitrent. For the
reduced plot of land which he received, the peasant was obliged to carry out these duties for
the landlord until the land had been paid for. The scale of purchase payments was reckoned at
inflated prices for land and amounted to about two milliard roubles.

Characterising the features of the peasant reform of 1861 Lenin wrote:

They all represent the first acts of mass violence against the peasantry in
the interests of nascent capitalism in agriculture. It is the clearing of
estates for capitalism by the landlords. (Lenin, The Agrarian Programme of
Social Democracy in the First Russian Revolution, Selected Works, English
edition, vol. III, p. 182.),,

A double result was achieved by the eviction of the peasants from the land.
On the one hand, the land became the private property of a comparatively
small group of landowners.
Feudal estate property in land was converted into bourgeois property. On the
other hand, an abundant influx into industry of free workers ready to hire
themselves to the capitalists, was assured.
Apart from the presence of a cheap labour force, the accumulation in a few
hands of great wealth, in the form of sums of money which could be converted
into any means of production and used to hire workers, was essential for the
appearance of capitalist production.
In the Middle Ages large amounts of money were accumulated by traders
and usurers. This wealth was later used as the basis for organising many
capitalist enterprises.
The conquest of America, which was accompanied by the mass plundering
and extermination of the native population, brought the conquerors
incalculable riches which began to grow still faster as a result of the
exploitation of very rich mines of gold and silver. Hands were needed for the
mines. The native population, the Indians, perished in masses, not surviving
the harsh labour conditions. European merchants in Africa organised the
hunting of negroes which was carried out entirely as though it was wild animals
they hunted. The trade in negroes exported from Africa and converted into
slaves was exceptionally profitable. The slave traders profits achieved fabulous
heights. Negro slave labour began to be widely applied in the cotton
plantations of America.
Colonial trade was also one of the most important sources for the creation of
large fortunes. Dutch, English and French merchants organised East India
companies for trade with India. These companies were supported by their
governments. They were granted the monopoly of trade in colonial
commodities and the right of unlimited exploitation of the colonies with the use
of any forcible measures they pleased. The profits of the East India companies
were reckoned in hundreds per cent per year. In Russia rapacious trading with
the population of Siberia gave the merchants huge profits, as did the
plunderous system of liquor monopolies, which consisted in the States
granting to private entrepreneurs the right to produce and sell alcoholic liquors
for a definite payment.
Huge wealth in money was concentrated in the hands of commercial and
usurers capital as a result.
Thus, at the price of the plundering and ruin of the mass of small producers,
the wealth essential for the creation of large capitalist enterprises was
accumulated. Describing this process, Marx wrote: ... capital comes [into the
world] dripping from head to foot, from every pore, with blood and dirt. (Marx,
Capital, Kerr edition, vol. I, p. 834.)

Peasant Serf Risings. Bourgeois Revolutions. Fall of the

Feudal System

The struggle of the peasantry against the feudal landowners took place
throughout the whole feudal epoch, but it became particularly sharp towards
the end of this epoch. In the fourteenth century France was in the grip of a
peasant war which has gone down to history as the Jacquerie. The rising
bourgeoisie of the towns at first supported this movement, but left it at the
decisive moment.
At the end of the fourteenth century in England a peasant revolt flared up
which covered the greater part of the country. Armed peasants headed by Wat
Tyler went through the country, sacking landlords estates and the
monasteries, and entered London. The feudal lords turned to violence and
deceit in order to suppress the rising. Tyler was treacherously killed. Believing
the promises of the king and the feudal lords the rebels dispersed to their
homes. After this, punitive expeditions went about the countryside dealing out
savage punishment to the peasants.
At the beginning of the sixteenth century Germany was convulsed by a
peasant war supported by the town poor. Thomas Mnzer was the leader of the
rebels. The peasants demanded the abolition of the licence and violence of the
gentry.
In Russia the peasant wars headed by Stepan Razin in the seventeenth
century and Emelyan Pugachov in the eighteenth century were on a particularly
large scale. The rebellious peasants sought the abolition of serfdom, the
transfer to themselves of the landowners and government lands and the
ending of landlord rule. The intensification of the crisis of the feudal serf-
owning system of economy in the 1850s was expressed in a broad wave of
peasant risings on the eve of the 1861 reform.
In China peasant wars and risings on a huge scale took place throughout the
centuries. The rising of the Tai Ping in the period of the Tsing dynasty (middle
of the nineteenth century) embraced the millions of the peasantry. The rebels
occupied the ancient capital of China, Nanking. The Tai Ping agrarian law
proclaimed equality in the use of land and other property. In State organisation
the Tai Ping linked monarchy and peasant democracy in their own way, which
is also characteristic of peasant movements in other countries.
The revolutionary significance of peasant risings was that they shook the
foundations of feudalism and in the end led to the abolition of serfdom.
 The transition from feudalism to capitalism in the countries of Western
Europe took place through bourgeois revolutions. The struggle of the peasants
against the landowners was used by the rising bourgeoisie in order to hasten
the downfall of the feudal system, to replace serf exploitation by capitalist
exploitation and take power into their own hands. The peasants formed the
basic mass of those fighting against feudalism in the bourgeois revolutions. So
it was in the first bourgeois revolution in the Netherlands in the sixteenth
century. So it was in the English revolution of the seventeenth century. So it
was in the bourgeois revolution in France at the end of the eighteenth century.
The bourgeoisie used the fruits of the revolutionary struggle of the
peasantry, climbing to power on its shoulders. The peasants were strong in
their hatred of the oppressors. The peasant risings, however, bore a
spontaneous character. The peasantry, as a class of small private owners, was
split up and could not create a clear programme or a strong and well-knit
organisation for the struggle. Peasant risings can lead to success only if they
unite with the workers movement and if the workers lead the peasant risings.
At the period of the bourgeois revolutions of the seventeenth and eighteenth
centuries, however, the working class was still weak, few in numbers and
unorganised.
In the womb of feudal society more or less complete forms of the capitalist
order ripened. The new exploiting class, the capitalist class, grew up and there
appeared at the same time masses of people deprived of the means of
production, the proletarians.
In the period of bourgeois revolutions the bourgeoisie used against feudalism
the economic law of the obligatory correspondence between relations of
production and the character of the forces of production; they overthrew feudal
production relations, created new, bourgeois production relations and brought
production relations into keeping with the character of the forces of production
which had ripened in the womb of feudalism.
The bourgeois revolutions put an end to the feudal system and established
the dominance of capitalism.

Economic Views of the Feudal Period

The social system dominant at that time was reflected in the economic views of the feudal
period. Mental life in feudal society was under the control of the clergy and therefore found
expression predominantly in a religious and scholastic form. Considerations on the economic
life of that time formed special sections in theological tracts.
Economic opinions in China were for many centuries under the influence of the teaching of
Confucius. Confucianism as a religious ideology had arisen already in the fifth century B.C. The
social and economic views of Confucianism require strict maintenance of the hierarchy of feudal
estates, both in State structure and in family life. In Confuciuss words, the unenlightened
people should obey the aristocrats and wise men. Disobedience by ordinary people to their
superiors is the beginning of disorder. At the same time, Confucius called upon the nobles to
be humane and not to treat the poor too harshly. Confucius advocated the necessity of
uniting China, which was then divided, under the rule of a monarch. Confucius and his
followers idealised backward forms of economy and extolled the golden age of the patriarchal
past. The peasantry, crushed by the feudal aristocracy and the merchants, put into the
Confucian preachings their own aspirations and hopes for betterment of their lot, though
Confucianism did not express the class interests of the peasantry. As it developed,
Confucianism became transformed into the official ideology of the feudal nobility. It was used
by the ruling classes for the purpose of training the people in a spirit of slavish submission to
the feudalists and of perpetuating the feudal system.
One of the ideologists of feudalism in medieval Europe, Thomas Aquinas (thirteenth
century), attempted to justify the need for feudal society by divine law. Proclaiming feudal
property as necessary and reasonable, and declaring the peasant serfs to be slaves, Thomas
Aquinas, in opposition to the ancient slave-owners, asserted that in his soul the slave is free
and therefore a master has no right to kill a slave. Labour was no longer considered unworthy
of a free man. Thomas Aquinas regarded physical labour as base, and mental labour as noble.
In this division he saw the justification for societys division into estates. The same approach
from the point of view of the feudal estates appeared in his views on wealth. Each person
should own wealth in keeping with the position which he occupied on the hierarchical feudal
ladder. From this point of view the teaching of the medieval theologians on .the so-called just
price is characteristic. The just price should reflect the quantity of labour expended in
producing a commodity, and the estate of the producer.
Medieval defenders of the just price did not protest at all against merchant profits. They
only strove to confine profits within bounds so that they would not threaten the economic
existence of the other estates. They condemned usury as a low and immoral occupation. With
the development of commodity production and exchange, however, the clergy themselves
began to take part in money-lending; along with this, the attitude of the Church to usury
became more and more tolerant.
The class struggle of the oppressed and exploited masses against the ruling classes of feudal
society developed in a religious form for several centuries. The demands of exploited peasants
and journeymen were frequently based on quotations from the Bible. All sorts of sects were
very widespread. The Catholic church, fiercely persecuting heretics through the Inquisition,
burned them at the stake.
With the development of the class struggle, the religious form of the movement of the
oppressed masses retreated into the background, and the revolutionary character of this
movement stood out ever more clearly. The peasants demanded the suppression of serf
slavery, the abolition of feudal privileges, the establishment of equal rights, the abolition of
estates, and so on.
In the course of the peasant wars in England, Bohemia and Germany the slogans of the
rebels became more and more radical. The longing of the exploited masses of town and
country for equality expressed itself in the demand for community of property. This was a
yearning for equality in the sphere of consumption. Although the demand for community of
property was unrealisable, it was of revolutionary significance at that time since it rallied the
masses in struggle against feudal oppression.
Towards the end of the feudal period two outstanding early Utopian Socialists appeared-the
Englishman Thomas More, who wrote Utopia (sixteenth century) and the Italian Tomaso
Campanella whose book is called City of the Sun (seventeenth century). Seeing the growing
inequality and contradictions of contemporary society, these thinkers expounded their views on
the causes of social evils in an original form; they described what were, in their opinion, ideal
social systems, from which these evils would be excluded.
In the books of these Utopians a social system is described which is free from private
property and all its accompanying faults. Every one in this society is engaged in both handicraft
and agricultural labour. All inhabitants work six, or even four, hours a day, and the fruits of
their labour are entirely sufficient to satisfy all their needs. Products are distributed according
to need. The education of children is a concern of society.
The works of More and Campanella played a progressive part in the process of the
development of social thought. They contained ideas considerably in advance of the
development of society of that time. More and Campanella, however, did not know the laws of
social development, and their ideas were unrealisable, Utopian. It was impossible at that time
to destroy social inequality; the level of productive forces demanded the advance from feudal
to capitalist exploitation.
The rise of capitalism belongs to the sixteenth century. To the same century belong the first
attempts to comprehend and explain a number of the phenomena of capitalism. Thus in the.
sixteenth to eighteenth centuries there arose and developed the trend of economic thought and
policy known as mercantilism.
Mercantilism arose in England, and afterwards it appeared in France, Italy and other
countries. The mercantilists discussed the question of the countrys wealth, the forms of wealth
and the ways of its growth.
This was a time when capital-in the form. of merchant and usurers capital-was predominant
in the sphere of trade and credit. In the sphere of production, however, it had made only the
first steps by founding manufactories. After the discovery and conquest of America a flood of
gold and silver poured into Europe. Gold and silver were then ceaselessly re-distributed among
the individual European States, both by means of wars and through foreign trade.
In their understanding of the nature of wealth the mercantilists started from the superficial
phenomena of circulation. They concentrated attention not on production, but on trade and
money circulation, particularly the movement of gold and silver.
In the view of the mercantilists, not social production and its products, but money, gold and
silver, was the sole real wealth. The mercantilists demanded active intervention in economic life
by the State, so that as much money as possible should flow into the country and as little as
possible pass beyond its limits. The early mercantilists sought to achieve this by purely
administrative measures, forbidding the export of money from the country. Later mercantilists
considered it essential to expand foreign trade for these ends. Thus an English partisan of
mercantilism, Thomas Mun (1571-1641), a great merchant and director of the East India
Company wrote: The ordinary means therefore to increase our wealth and treasure is by
Foreign Trade, wherein we must ever observe this rule; to sell more to strangers yearly than
we consume of theirs in value.
The mercantilists reflected the interests of the bourgeoisie which was growing up in the
womb of feudalism and striving to accumulate wealth in gold and silver by developing foreign
trade, colonial plunder and trade wars and the enslavement of backward peoples. In connection
with the development of capitalism, they began to demand that the State authorities should
protect the development of industrial enterprises, the manufactories. Export bounties, which
were paid to merchants selling commodities on the foreign market, were established. Import
duties soon became still more significant. With the development of the manufactories and later
of factories, the imposition of duties on imported commodities became the most widespread
defence measure of home industry against foreign competition.
Such a defensive policy is called protectionism. In many countries it remained for a long
time after the conceptions of mercantilism had been overcome.
In England protective duties were of great significance in the sixteenth and seventeenth
centuries, when competition from the more developed manufactories of the Netherlands
threatened her. From the eighteenth century England was steadily gaining industrial leadership.
Other less developed countries could not compete with her. Consequently, ideas of free trade
began to gain ground in England.
A different situation was created in countries which entered on the capitalist road later than
England. Thus, in France in the seventeenth century Colbert, the minister of Louis XIV, who in
fact ruled the country, created a widely ramified system of State patronage of manufactories.
His system included high import duties, the prohibition of exports of raw materials, the
introduction of a number of new branches of industry, the setting up of companies for foreign
trade, and so on.
Mercantilism played a progressive part for its time. The protectionist policy inspired by the
ideas of mercantilism greatly helped the spread of manufactories. The lack of development of
capitalist production at that time, however, was reflected in the mercantilists views of wealth.
The further development of capitalism made the unsoundness of the conceptions of the
mercantile system more and more evident.
In Russia in the seventeenth and eighteenth centuries the feudal serf-owning system of
economy was dominant. The economy was basically a natural one. At the same time, trade and
handicraft developed considerably, a national market was formed and manufactories began to
arise. These economic changes in the country helped to strengthen absolutism in Russia.
The representatives of Russian economic thought, reflecting the historical and economic
peculiarities of the country, developed certain mercantilist ideas. However, as distinct from
many West European mercantilists, they ascribed great significance not only to trade, but also
to the development of industry and agriculture.
The economic views of that time were reflected in the works and measures of the
seventeenth century Russian statesman A.L. Ordyn-Nashchokin, in the economic policy of Peter
I and in the works of the most important Russian economist of the beginning of the eighteenth
century, 1.T. Pososhkov.
 In his Book on Poverty and Wealth (1724) I.T. Pososhkov expounded a broad programme of
Russian economic development and offered a developed justification for this programme.
Pososhkov demonstrated the necessity of adopting a number of economic measures in Russia
with the aim of protecting the development of home industry trade and agriculture and
improving the countrys financial system.
In the last third of the eighteenth century a tendency to the breakdown of feudal serf-
owning relations was noticeable in Russia; this became much more acute in the first quarter of
the nineteenth century, and later grew into a direct crisis of serfdom.
The initiator of the revolutionary-democratic trend in Russian social thought, A.N.
Radishchev (1749-1802), was an outstanding economist of his time. Radishchev, resolutely
attacking serfdom and defending the oppressed peasantry, made an annihilating criticism of
the serf-owning system, exposed the exploiting nature of the wealth of the landlords and serf-
owners, the owners of manufactories and traders and justified the right to ownership of land of
those who worked it with their labour. Radishchev was firmly convinced that the autocracy and
serfdom could be liquidated only by revolutionary means. He worked out a system of economic
measures which were progressive for, his time, and the realisation of which would have secured
Russia s advance to a bourgeois democratic system.
The Decembrists, in the first half of the nineteenth century, were revolutionaries of that
historical period in Russia when the need to replace feudalism by capitalism had ripened. They
directed the edge of their criticism against serfdom. Standing forth as fiery partisans of the
development of Russias productive forces, they considered the abolition of serfdom and the
emancipation of the peasants as the most important conditions of this development. The
Decembrists not only put forward the slogan of struggle against serfdom and autocracy, but
also organised an armed rising against the absolute monarchy. P.I. Pestel (1793-1826) worked
out an original scheme for the solution of the agrarian problem in Russia. He drew up a kind of
draft constitution, which he called The Russian Law, envisaging the urgent and complete
emancipation of the peasants from serfdom and also economic measures for the defence of the
peasants interests for the future. For this purpose Pestel considered it essential to create a
special public land fund from which each peasant could receive for his own use, without
payment, land essential for his existence. This fund should be formed out of part of the land of
the landlords and the Government, moreover, part of the land should be alienated from the
largest landlords without compensation. The Decembrists, as revolutionaries coming from the
ranks of the gentry, were far from the people, but their ideas of struggle against serfdom
helped the growth of the revolutionary movement in Russia.
The ideology of the bourgeoisie in their rise to supremacy was formed in conditions of the
breakdown of feudalism and the birth of the capitalist order of society. This ideology was
directed against the feudal system and against religion as the ideological weapon of the feudal
lords. Therefore, the outlook of the bourgeoisie struggling for power had a progressive
character in a number of countries. Its most notable representatives-economists and,
philosophers-subjected to decisive criticism all the fundamental principles of feudal society:
economic, political, religious, philosophical and moral. They played a great part in the
ideological preparation of the bourgeois revolution and exerted a progressive influence on the
development of science and art.
 BRIEF CONCLUSIONS
(1) Feudalism arose on the basis of the disintegration of slave-owning
society and the break-up of the village community of the tribes which
conquered the slave-owning States. In those countries where there had been
no slave-owning system, feudalism arose on the basis of the break-up of the
primitive community system. The clan aristocracy and military leaders of the
tribes took into their hands a great quantity of lands and distributed them
among their followers. The gradual enserfing of the peasants took place.
(2) The feudal lords ownership of land and incomplete ownership of the
worker in production-the peasant serf-was the basis of the relations of
production in feudal society. As well as feudal property there existed the
individual property of the peasant and craftsman, which was based on personal
labour. The labour of the peasant serfs was the source of the existence of
feudal society. Serf exploitation was expressed in the fact that the peasants
were compelled to perform week-work for the feudal lord, or to pay him
quitrent in kind and in money. The burden that serfdom laid on the peasant
was frequently little different from that of slavery. However, the serf system
opened certain possibilities for the development of the productive forces since
the peasant could work a certain part of the time on his own holding and had a
certain interest in his labour.
(3) The basic economic law of feudalism consists in the production of surplus
product to satisfy the demands of the feudal lords, by means of the
exploitation of dependent peasants, on the basis of the ownership of the land
by the feudal lords and their incomplete ownership of the workers in
production-the serfs.
(4) Feudal society, particularly in the period of the early Middle Ages, was
split into small princedoms and states. The nobility and clergy were the ruling
estates of feudal society. The peasant estate had no political rights. A class
struggle between peasants and feudal lords took place throughout the whole
history of feudal society. The feudal State, reflecting the interests of nobility
and clergy, was an active force helping them to consolidate their right of feudal
ownership of the land and to intensify their exploitation of the dispossessed
and oppressed peasants.
 (5) In the feudal epoch agriculture played a predominant part, and the
economy had a basically natural character. With the development of the social
division of labour and exchange, the old towns which had survived the fall of
the slave-owning system revived, and new towns arose. The towns were
centres of handicraft and trade. The crafts were organised in guilds which
strove to prevent competition. Traders united in merchant guilds.
(6) The development of commodity production, breaking down the natural
economy, led to differentiation among the peasants and the craftsmen.
Merchant capital hastened the decline of the crafts and promoted the birth of
capitalist enterprise-the manufactories. Feudal limitations and territorial
divisions acted as a brake on the growth of commodity production. In the
process of further development the national market was formed. The
centralised feudal State arose in the form of absolute monarchy.
(7) Primitive accumulation of capital prepared the conditions for the rise of
capitalism. Huge numbers of small producers-peasants and craftsmen-were
deprived of the means of production. Great monetary wealth concentrated in
the hands of large landowners, merchants and usurers was created by means
of the forcible expropriation of the peasantry, colonial trade, taxes and the
slave trade. Thus the formation of the basic classes of capitalist society, of
wage-workers and capitalists, was accelerated. More or less complete forms of
the capitalist order of society grew and ripened in the womb of feudal society.
(8) The production relations of feudalism, the low productivity of the unfree
labour of the peasant serfs, and guild restrictions, hindered the further
development of productive forces. Peasant serf risings. shook the feudal
system and led to the abolition of serfdom. The bourgeoisie took the lead in
the struggle for the overthrow of feudalism. It made use of the revolutionary
struggle of the peasants against the feudal lords in order to take power into its
own hands. The bourgeois revolutions put an end to the feudal system and
established the rule of capitalism, giving scope for the development of the
forces of production.
 Part Two

THE CAPITALIST MODE OF PRODUCTION

A. PRE-MONOPOLY CAPITALISM
 CHAPTER IV

COMMODITY PRODUCTION.
COMMODITIES AND MONEY
Commodity Production-the Point of Departure for the Rise of
Capitalism and a General Feature of Capitalism

The capitalist mode of production, which arose as successor to the feudal

mode of production, is based upon exploitation of the class of wage-workers by
the class of capitalists. To understand the essence of the capitalist mode of
production one must bear in mind, first and foremost, that the capitalist
system has commodity production as its foundation: under capitalism
everything takes the form of a commodity and the principle of buying and
selling prevails everywhere.
Commodity production is older, than capitalist production. It existed in
slave-owning society and under feudalism. In the period when feudalism was
breaking down, simple commodity production served as the basis for the rise of
capitalist production.
Simple commodity production presupposes, first, the social division of
labour, under which individual producers specialise in making particular
products, and, second, the existence of private property in the means of
production and in the products of labour.
The simple commodity production of craftsmen and peasants is
distinguished from capitalist commodity production by the fact that it is based
upon the personal labour of the commodity producer. Yet fundamentally it is
similar in kind to capitalist production, in so far as its foundation is private
property in the means of production. Private ownership inevitably gives rise to
competition between the commodity producers, which leads to the enrichment
of a minority and the ruin of the majority. Thus, petty commodity production
serves as the point of departure for the rise and development of capitalist
relations.
Under capitalism commodity production becomes dominant and universal.
The exchange of commodities, Lenin wrote, appears as the simplest, most
ordinary, fundamental, most common and everyday relation of bourgeois
(commodity) society, a relation that is encountered thousands of millions of
times. (Lenin, On Dialectics, Marx-Engels-Marxism, 1951, English edition, p.
334.)

The Commodity and its Characteristics. Dual Nature of the

Labour embodied in a Commodity

A commodity is a thing which, first, satisfies some human demand and,

second, is produced not for personal consumption but for exchange.
The utility of a thing, the characteristics thanks to which it is able to satisfy
some human demand, makes the thing a use-value. A use-value can either
directly satisfy an individual human demand or else serve as a means of
production of material wealth. For instance, bread satisfies a demand as food
and cloth as clothing, while the use-value of a loom consists in the fact that
cloth is made with its help. In the course of historical development, man
continually discovers fresh useful characteristics in things and fresh ways of
using them.
Use-value is possessed by many things which have not in any way been
created by human labour, such as, for example, spring-water or the fruits of
wild trees. But not everything which has use-value is a commodity. For a thing
to become a commodity it must be a product of labour produced for sale.
Use-value forms the material substance of wealth, whatever its social form
may be. In a commodity economy, use-value is the depository of the
exchange-value of a commodity. Exchange-value appears first of all as the
quantitative relationship in which use-values of one kind are exchanged for
use-values of another kind. For example, one axe is exchanged for 20
kilogrammes of grain. In this quantitative relationship between the
commodities exchanged is expressed also their exchange-value. Commodities
are treated as equivalent to each other in definite quantities, consequently they
must have a common basis. This basis cannot be any of the natural properties
of commodities-their weight, size, shape, etc. The natural properties of
commodities determine their utility and their use-value, a necessary condition
for exchange is difference between the use-values of the commodities to be
exchanged. No one will exchange commodities which are identical, such as
wheat for wheat, or sugar for sugar. The use-values of different commodities,
being different qualitatively, are incommensurable quantitatively.
Commodities of different kinds have only one characteristic in common
which makes it possible to compare them for purposes of exchange, and it is
that they are all products of labour. Underlying the equivalence of two
commodities which are exchanged against each other is the social labour
expended in producing them. When a commodity producer brings an axe to
market in order to exchanger it he finds that for his axe he can get 20
kilogrammes of grain. This means that the axe is worth the same amount of
social labour as 20 kilogrammes of grain are worth. Value is the social labour of
commodity producers embodied in a commodity.
That the value of commodities embodies the social labour expended in
producing them is borne out by some generally known facts. Material wealth
which is useful in itself, but requires no expenditure of labour for its production,
has no value-e.g., the air. Material wealth which requires a large expenditure of
labour has a high value-e.g., gold, diamonds. Many commodities which at one
time were costly have become cheaper as the development of technique has
reduced the amount of labour needed to produce them. Changes in the amount
of labour expended in producing commodities are usually reflected in the
quantitative relationship between these commodities when exchanged, i.e., in
their exchange-value. It follows from all this that the exchange-value of a
commodity is the form in which its value manifests itself.
Hidden behind the exchange of commodities is the social division of labour
between the persons who are the owners of these commodities. When
commodity producers compare different commodities, one with another, in so
doing they are comparing their different kinds of labour. Thus, value expresses
the production-relations between commodity producers. These relations
manifest themselves in the exchange of commodities.
A commodity has a two-fold character: in one aspect it is a use-value and in
another it is a value. The two-fold character of the commodity is caused by the
two-fold nature of the labour embodied in the commodity. The kinds of labour
are just as various as the use-values which are produced. The labour of a
joiner is qualitatively different from that of a tailor, a shoemaker, etc. The
different kinds of labour are distinguished one from another by their aims,
methods, tools and, finally, their results. The joiner does his work with an axe,
a saw and a plane and makes wooden articles: tables, chairs, cupboards; the
tailor makes clothes, using a sewing machine, scissors and a needle. Thus, in
each use-value a definite kind of labour is embodied: in a table-the joiners
labour, in a suit-the tailors labour, in a pair of shoes-the shoemakers labour,
etc. Labour expended in a definite form is concrete labour. Concrete labour
creates the use-value of a commodity.
In the course of exchange, commodities of the most various kinds, created
by different kinds of concrete labour, are compared together and measured on
a common footing. Consequently, behind the different concrete forms of labour
there is hidden something common, something inherent in every form of
labour. Both the joiners labour and the tailors, despite the qualitative
difference between these forms of labour, constitute a productive expenditure
of human brains, nerves, muscles, etc., and in this sense are homogeneous
human labour, labour in general. The labour of commodity producers,
considered as expenditure of human labour-power generally, without regard to
its concrete form, is abstract labour. Abstract labour forms the value of a
commodity.
Abstract and concrete labour are two aspects of the labour embodied in a
commodity.

On the one hand, all labour is, speaking physiologically, an expenditure

of human labour-power and in its character of identical abstract human
labour, it creates and forms the value of commodities. On the other hand,
all labour is the expenditure of human labour-power in a special form and
with a definite aim, and in this, its character of concrete useful labour, it
produces use-values. (Marx, Capital, Kerr edition, vol. I, p. 54.)
 In a society in which private property in the means of production prevails,
the two-fold character of the labour embodied in a commodity reflects the
contradiction between the private and social labour of the commodity
producers. Private ownership of the means of production separates people,
makes the labour of the individual commodity producer his own private affair.
Each commodity producer conducts his enterprise separately from the rest.
The labour of the separate workers is not concerted or co-ordinated on the
scale of society as a whole. But, from another angle, the social division of
labour means that all-round connections exist between the producers, who are
working for each other. The more labour is divided in society and the more
varied are the products manufactured by the separate producers, the more
extensive is the mutual dependence of the latter. Consequently, the labour of
each separate commodity producer is essentially social labour and forms a
particle of the labour of society as a whole. Commodities, which are products of
various kinds of particular, concrete labour, are at the same time also products
of human labour in general, abstract labour.
It follows that the contradiction of commodity production consists in the
labour of commodity producers, which is directly the private affair of each one
of them, having at the same time a social character. Owing to the isolation of
the commodity products one from another, the social character of their labour
in the process of production remains hidden. It finds expression only in the
process of exchange, when the commodity comes on to the market and is
exchanged against another commodity. Only in the process of exchange is it
revealed whether the labour of a particular commodity producer is needed by
society and whether it will receive social recognition.

Abstract labour, which forms the value of a commodity, is an historical

category, a specific form of social labour belonging to commodity economy
only. In natural economy men produce their products not for exchange but for
personal consumption, so that the social character of their labour appears
directly in concrete form. For example, when a feudal lord extracted surplus
product from serf-peasants in the form of labour-rent or rent in kind, he
appropriated their labour directly in the form of labour services or definite
products. In these circumstances social labour did not assume the form of
abstract labour. In commodity production, products are produced not for
personal consumption but for sale. The social character of labour is here
expressed by means of the comparison of one commodity with another, and
this comparison takes place through the reducing of concrete forms of labour
to the abstract labour which forms the value of a commodity. This process
takes place spontaneously, without any sort of common plan, behind the backs
of the commodity producers.

Socially-necessary Labour-Time.
Simple and Complex Labour

The magnitude of the value of a commodity is determined by labour-time.

The more labour-time is needed to produce a given commodity, the higher is
its value. Of course, the individual commodity producers work in varying
conditions and expend varying amounts of labour-time in the production of one
and the same kind of commodity. Does this mean that the more idle the
worker, or the less favourable the conditions in which he is working, the higher
the value of the commodity produced by him? No, it does not mean that. The
magnitude of the value of a commodity is determined not by the individual
labour-time expended by a particular commodity producer in producing a
commodity, but by the socially-necessary labour-time.
Socially-necessary labour-time is the time needed for the making of any
commodity under average social conditions of production, i.e., with the average
level of technique and average skill and intensity of labour. It corresponds to
the conditions of production under which the greatest bulk of goods of a
particular kind are produced. Socially-necessary labour-time changes as a
result of the growth of the productivity of labour.
The productivity of labour is expressed in the amount of products created in
a given unit of labour-time. The productivity of labour grows as a result of the
improvement or fuller utilisation of the instruments of production, the
development of science, the increase in the workers skill, the rationalisation of
work, and other improvements in the production process. To a greater or less
extent it is also dependent on natural conditions. The higher the productivity of
labour, the less the time needed for the production of a unit of the given
commodity and the lower the value of this commodity.
The intensity of labour must be distinguished from the productivity of
labour. The intensity of labour is determined by the amount of labour expended
in a unit of time. A growth in the intensity of labour means an increase in the
expenditure of labour in one and the same interval of time. More intensive
labour embodies itself in a greater quantity of products and creates a greater
value in a given unit of time, as compared with less intensive labour.
Workers of varying skill take part in the production of commodities. The
labour of a worker who has had no special training is simple labour. Labour
which requires special training is complex or skilled labour.
Complex labour creates value of greater magnitude than is created by
simple labour in the same unit of time. Into the value of a commodity created
by complex labour there enters also part of the labour expended on the
workers training, on raising his degree of skill. Complex; labour is equivalent
to multiplied simple labour; one hour of complex labour is equal to several
hours of simple labour. The reduction of various forms of complex labour to
simple labour takes place spontaneously under commodity production based on
private property. The magnitude of the value of a commodity is determined by
the socially-necessary amount of simple labour.

Development of the Forms of Value. Nature of Money

The value of a commodity is created by labour in the process of production,

but it can manifest itself only through the comparison of one commodity with
another in the process of exchange, i.e., through exchange-value.
The simplest form of value is the expression of the value of one commodity
in terms of another commodity: e.g., one axe=2.0 kilogrammes of grain. Let
us examine this form.
In this case, the value of the axe is expressed in terms of grain. The grain
serves as a means of expressing the value of the axe. It is possible to express
the value of the axe in the use-value of grain only because labour is expended
both in the production of the grain and in that of the axe. Behind the equality
of these commodities is concealed the equal expenditure of labour in producing
them. A commodity which expresses its value in another commodity (in our
example, the axe), has a relative form of value. A commodity the use-value of
which serves as the means of expressing the value of another commodity (in
our example, the grain), has an equivalent form. The grain is the equivalent of
(is worth) the other commodity, viz., the axe.
The use-value of one commodity, grain, thus becomes the form in which the
value of another commodity, the axe, is expressed.
In the beginning, exchange, which originated already in primitive society,
was of a casual nature and took place in the form of direct exchange of one
product for another. To this stage in the development of exchange corresponds
the elementary or accidental form of value:

1 axe=20 kilogrammes of grain.

Under the elementary form of value, the value of an axe can be expressed
only in the use-value of a single commodity; in the given example, grain.
With the rise of the first major social division of labour-the separation of
pastoral tribes-from the general mass of tribes exchange becomes more
regular. Certain tribes, e.g., the cattle-raising ones, begin to produce a surplus
of cattle products, which they exchange for products of agriculture or
handicraft which they lack. To this level of the development of exchange
corresponds the total or expanded form of value. There now take part in
exchange not two but a whole series of commodities:

= 40 kilogrammes of grain,
or
= 20 metres of cloth,
1 sheep or
2 axes,
or
= 3 grammes of gold, etc.

In this case the commoditys value is expressed in the use-value not of a

single commodity but of a number of commodities, all playing the part of
equivalent. In addition, the quantitative correlations in which the commodities
are exchanged, acquire a more constant character. At this stage, however, the
direct exchange of one commodity for another is retained.
With the further development of the social division of labour and of
commodity production, the form of direct exchange of one commodity far
another becomes inadequate. Difficulties arise in the process of exchange,
engendered by the growth of the contradictions of commodity production,
contradictions between individual and social labour, between the use-value and
the value of a commodity. With increasing frequency the situation occurs when,
for example, the owner of some shoes wants an axe, but the use-value of the
shoes prevents exchange being effected, because the owner of an axe wants
not shoes but grain: it is not possible for these tw6 commodity owners to effect
a transaction. When this happens the owner of shoes exchanges his shoes for
that commodity which is exchanged more often than any other and which
everybody accepts most readily-a sheep, say-and then exchanges this sheep
for the axe which he wants. The owner of the axe, having received in exchange
for it a sheep, exchanges this for grain. This is how the contradictions of direct
exchange are solved. The direct exchange of one commodity for another
gradually disappears. From among the commodities one becomes singled out-
e.g., livestock-for which all commodities begin to be exchanged. To this stage
in the development of exchange corresponds the general form of value:

40 kilogrammes of grain =
or
20 metres of cloth =
or
1 sheep.
2 axes =
or
3 grammes of gold, etc. =

It is a characteristic of the general form of value that all commodities begin

to be exchanged for a commodity which plays the role of universal equivalent.
At this stage, however, the role of universal equivalent had still not become
attached to any single commodity. In different places the role of universal
equivalent was played by different commodities. In some places it was
livestock, in others furs, in yet others salt, and so on.
The further growth of the productive forces, the transition to metal tools,
the rise of the second major division of labour -the separation of handicraft
from agriculture-led to the further development of commodity production and
the widening of the market. The abundance of different commodities playing
the role of universal equivalent came into contradiction with the needs of the
growing market, which required transition to a single equivalent.
When the role of universal equivalent had become attached to one
commodity, the money form of value appeared. The role of money has been
taken by various metals, but eventually it became consolidated in the precious
metals, gold and silver. In silver and gold are particularly expressed all the
advantages of metals which make them more suitable than anything else to
fulfil the function of money: homegeneity, divisibility, durability and
insignificant size and weight combined with great value. Therefore the role of
money became firmly connected with the precious metals, and in the long run
with gold.
The money form of value can be depicted like this:

40 kilogrammes of grain =
or
20 metres of cloth =
or
3 grammes of gold.
1 sheep =
 or
2 axes, etc. =

Under the money form of value, the value of every commodity is expressed
in the use-value of a single commodity, which has become the universal
equivalent.
Money thus arose as a result of a long process of development of exchange
and of forms of value. With the rise of money a polarisation took place in the
world of commodities-at one pole remained the ordinary commodities, while to
the other pole went the commodity which played the role of money. Now all
commodities begin to express their value in the money; commodity.
Consequently, money appears, in contradiction to all other commodities, as the
general embodiment of value the universal equivalent. Money possesses the
property of being directly exchangeable for any commodity and so serves as
the means of satisfying all the requirements of the commodity owners,
whereas all other commodities can satisfy only one or other of their
requirements-e.g., bread, clothing, etc.
Consequently, money is the commodity which is the universal equivalent of
all commodities; it embodies social labour and expresses the production
relations between the commodity producers.

Functions of Money

As commodity production extends so the functions fulfilled by money

expand. In developed commodity production money serves as:

(1) the measure of value, (2) the medium of circulation, (3) the means of
accumulation, (4) the means of payment and (5) world-wide currency.

The fundamental function of money consists in serving as the measure of

value of commodities. With the aid of money the individual labour of a
commodity producer finds social expression and the spontaneous calculation
and measurement of the values of all commodities is effected. The value of a
commodity cannot be directly expressed in labour-time, since under conditions
in which the private commodity producers operate in isolation and separation
one from another it is impossible to determine the amount of labour which not
any particular commodity producer but society as a whole expends in the
production of any particular commodity. For this reason the value of a
commodity can be expressed only indirectly, by way of the equating of the
commodity with money in the process of exchange.
To fulfil the function of measure of value, money must itself be a commodity
and possess value. Just as the weights of bodies can be measured only by
means of scales which themselves possess weights, so the value of a
commodity can be measured only by means of a commodity which possesses
value.
Measurement of the value of commodities by means of gold occurs even
before a given commodity is exchanged for money. To express the value of
commodities in money it is not necessary to have cash in ones hand. In fixing
a definite price for a commodity, its owner mentally (or, as Marx puts it,
ideally) expresses the commoditys value in gold. This is possible thanks to the
fact that there exists in reality a definite correlation between the value of gold
and the value of the given commodity; the basis for this correlation is provided
by the socially-necessary labour which is expended in producing them.
A commoditys value expressed in money is called its price. Price is the
monetary expression of the value of a commodity. Commodities express their
value indefinite amounts of silver or gold. These amounts of the money
commodity must themselves in their turn be measured. This gives rise to the
need for a unit of measurement of money. This unit consists of a definite
amount, by weight, of the metal used for money.
In Britain, for example, the money unit is called the pound sterling; at one
time it corresponded to a pound of silver. Later, money units ceased to coincide
with units of weight. This occurred as a result of the importation of foreign
coins, of the going over from silver to gold, and especially in consequence of
the debasement of coins by governments, which gradually reduced their
weight. For convenience of measurement monetary units are divided into
aliquot parts: the rouble into 100 kopeks, the dollar into 100 cents, the franc
into 100 centimes, etc.
The unit of money and its parts provide the standard of price. As a standard
of price money plays a role completely different from when it serves as a
measure of value. As a measure of value money measures the value of other
commodities, but as a standard of price it measures the quantity of the money
metal itself. The value of the money commodity varies with changes in the
amount of labour socially necessary for its production. Changes in the value of
gold are not reflected in its function as a standard of price. However much the
value of gold may change, a dollar is still worth a hundred times as much as a
cent.
The State can alter the gold content of the money unit, but it is not in a
position to vary the value relationship between gold and other commodities.
Should the State reduce the amount of gold contained in the money unit, i.e.,
lower its gold content, the market would react to this by a rise in prices, and
the value of a commodity would be expressed, as before, in that quantity of
gold which corresponded to the labour expended in producing the commodity
in question. All that would happen would be that now a larger number of
monetary units than before would be needed to express the same quantity of
gold.

The prices of commodities may rise or fall under the influence of changes either in the
value of commodities or in the value of gold. The value of gold, as of every commodity,
depends on the productivity of labour. Thus, the discovery of America, with its rich gold-fields,
led to a price-revolution in Europe between the sixteenth and eighteenth centuries. Gold was
obtained in America with less labour than in Europe. The influx into Europe of the cheaper
American gold brought about a general rise in prices.

Money fulfils the function of circulation medium. The exchanging of

commodities effected with the aid of money is called commodity circulation.
The circulation of commodities is inseparably bound up with the circulation of
money itself: when a commodity passes from the hands of the seller into those
of the buyer, money passes from the hands of the buyer into those of the
seller. Moneys function as circulation medium consists in its playing the part of
intermediary in the circulation process of commodities. To carry out this
function real money must be actually present.
At first, when commodities were exchanged, money figured directly in the
form of bars of silver or gold. This led to certain difficulties: it was necessary to
weigh the money metal, to break it up into small pieces and to carry out
assays. Gradually bars of the money metal gave place to coins. A coin is a
piece of metal of definite shape, weight and denomination, which serves as a
medium of circulation. The minting of money was concentrated in the hands of
the State.
During the process of circulation, coins become worn by use and lose part
of their value. The practice of monetary circulation showed that worn coins
could fulfil the function of circulation medium equally as well as coins of full
value. The reason for this was that money when acting as a circulation medium
plays only a fleeting role. As a rule, the seller of a commodity accepts money in
exchange for it so as to buy another commodity with this money.
Consequently, money acting as circulation medium need not necessarily
possess its proper value.
Taking into account the practice of the circulation of worn coins,
governments began consciously to debase the coinage, to reduce its weight, to
lower the standard of assay of the money metal without changing the nominal
value of coins, i.e., the number of monetary units marked upon them. Coins
were transformed more and more into symbols of value, tokens of money.
Their actual values are very much less than they nominally appear to be.

The splitting of the category commodities into commodities and money heralds a
development of the contradictions of commodity production. When one commodity is directly
exchanged for another, each transaction is of an isolated nature; selling is not separated from
buying. It is another matter when exchange is carried on by mean of money, i.e., when
commodity circulation arises. Now exchange presupposes an all-round connection between
commodity producers and a ceaseless interweaving of transactions among them. It opens up
the possibility of a separation between buying and selling. A commodity producer can sell his
commodity and retain for the time being the money which he receives for it. When many
commodity producers sell without buying, a hold-up in the sale of commodities Can come
about. Thus, even simple commodity circulation contains in germ the possibility of crises. For
this possibility to be transformed into inevitability, however, a number of conditions are needed
which appear only with the advance to the capitalist mode of production.

Money fulfils the function of means of accumulation or means of forming

hoards. Money is transformed into a hoard when it is withdrawn from
circulation. As money can always be transformed into any commodity, it is the
universal equivalent of wealth. It can be kept in any quantity. Commodity
producers accumulate money, for example, in order to buy means of
production or as savings. With the development of commodity production the
power of money grows. All this gives rise to a passion for saving money, to the
formation of hoards. The function of a hoard can be fulfilled only by money of
full value: gold and silver coins, bars of gold and. silver, and also articles made
of gold and silver. When gold or silver coins are serving as money, they
spontaneously adapt themselves in amount t-a the requirements of commodity
circulation. When the production of commodities declines and commodity
circulation shrinks, some of the gold coins disappear from circulation and are
transferred into hoards. When production extends and commodity circulation
grows, these coins reappear in circulation.
Money fulfils the function of means of payment. Money figures as a means
of payment in cases when the buying and selling of a commodity is carried out
on credit, i.e., with. the payment deferred. When a commodity is bought on
credit the transfer of the commodity from the sellers hands to the buyers is
effected without immediate payment by the purchaser. When the time comes
fori the purchased commodity to be paid for, money is paid by the buyer to the
seller without any transfer of a commodity, this having taken place earlier.
Money serves as a means of payment also in the payment of taxes, rent, etc.

The functioning of money as a means of payment reflects the further development of the
contradictions of commodity production. The links between the separate commodity producers
become more extensive and their dependence upon each other increases. The buyer now
becomes a debtor and the seller is transformed into a creditor. When many commodity owners
are buying commodities on credit, the failure of one or a number of debtors to honour in due
time their promises to pay can react upon a whole series of obligations to pay, and lead to the
bankruptcy of a number of commodity owners who are linked together by credit relationships.
Thus the possibility of crises, which is already inherent in the function of money as circulation
medium, is intensified.

Examination of the function of money as circulation medium and as means

of payment enables us to see clearly the law which determines the amount of
money needed for the circulation of commodities.
Commodities are bought and sold. in many places at the same time. The
amount of money needed for circulation in a given period depends, first of all,
on the total of the prices of the commodities in circulation, which in turn
depends on the quantity of commodities and the price of each separate
commodity. In addition, the velocity with which money moves around must be
taken into account. The more rapidly money moves, the less of it is needed for
circulation, and vice versa. If, for example, in. the course of a given period-a
year, say-,commodities are sold at a total price of 1,000 million dollars, and
each dollar moves five times, on the average, then for the circulation of the
whole mass of commodities 200 million dollars are needed.
Thanks to the credit which commodity producers grant each other, the need
for money is reduced by the total of the prices of commodities which are sold
on credit and by the total of payments which mutually cancel out.. Ready
money is needed only for the settlement of those debt obligations the time to
meet which has arrived.
Thus, the law of the circulation of money is this: the amount of money
needed for the circulation of commodities must equal the total of the prices of
all commodities, divided by the average turnover of money units of the same
denomination. Furthermore, from the total of the prices of all commodities
must be deducted the total of the prices of all commodities sold on credit and
the sum of mutually-cancelling payments, and to it must be added the total of
payments the time to settle which has come round.
This law applies universally to all social formations where commodity
production and circulation take place.
Finally, money plays the role of world-wide currency in circulation
between different countries. The role of universal money cannot be played by
coins of less than full value or by paper money. On the world market money
abandons the form of coins and appears in its original aspect-bars of precious
metal. On the world market, in circulation between countries, gold is the
universal purchasing medium for payment for commodities imported into one
country from another, the universal means of payment for clearing
international debts, for paying interest on foreign loans and other obligations,
and the universal embodiment of social wealth when this is transferred from
one country to another in monetary form, e.g., when money capital is exported
from one country to another for the purpose of depositing it in foreign banks,
for making loans, or for the payment of contributions by a conquered country
to a victorious one, etc.
The development of the function of money expresses the growth of
commodity production and its contradictions. In social formations based on the
exploitations of man by man money bears a class character, serving as the
means of appropriating the labour of others. It played this part in slave-owning
society and in feudal society. As we shall see below, the role of money as an
instrument of exploitation attained its highest development in capitalist society.

Gold and Paper Money

Under conditions of developed commodity production, paper money is often

used instead of gold coins. The issue of paper money was engendered by the
practice of the circulation of worn and devalued coins which had become
transformed into symbols of gold, symbols of money.
Paper money means money tokens issued by the State, which people are
obliged to accept instead of gold so far as its function as circulation medium is
concerned. Paper money has no value of its own. For this reason it cannot fulfil
the function of measure of the value of commodities. However much paper
money may be issued, it represents only the value of that quantity of gold
which is necessary for commodity circulation to be maintained. Paper money is
not accepted in exchange for gold.
If paper money is issued in accordance with the amount of gold needed for
circulation, the purchasing power of paper money, i.e., the amount of
commodities which it can buy, coincides with the purchasing power of gold
money. But usually the State issues paper money to cover its expenses,
especially in wartime, during crises or other emergencies, without regard to
the needs of commodity circulation.
When the production and circulation of commodities are restricted or when
an exceptional amount of paper money is issued, the latter is found to be in
excess of the quantity of gold needed for circulation. Money has been issued,
let us say, to an extent double what is needed. In such a case, each unit of
paper money (dollar, mark, franc, etc.) will represent half the quantity of gold,
i.e., the paper will depreciate by half.

The first attempts to issue paper money took place in China as far back as the twelfth
century; paper money was issued in America in 16901 and in France in 1716; Britain began to
issue paper money at the time of the Napoleonic Wars. In Russia paper money was first issued
in Catherine IIs reign.

1
In Massachusetts, then a British colony. Editor, English edition.
 An extraordinarily large issue of paper money, leading to its depreciation
and used by the ruling classes for the purpose of transferring the burden of
State expenditure on to the backs of the working masses and increasing their
exploitation; is called inflation. Inflation, which gives rise to an increase in the
cost of goods, bears heaviest upon the working people, because the wages and
salaries of the workers lag behind the rise in prices. Capitalists and landlords
benefit from inflation, owing above all to the fall in the real wages of industrial
and agricultural workers. Inflation benefits those capitalists who export their
commodities. As a result of the fall in real wages and the reduction thereby of
the costs of production of commodities it becomes possible for them to
compete successfully with foreign capitalists and landlords and increase the.
sale of their commodities.

The Law of Value-an Economic Law of Commodity

Production

In commodity production based on private property, the production of

commodities is carried out by separate private commodity producers. A
competitive struggle goes on between these commodity producers. Each one
tries to push the others aside and to maintain and extend his own position in
the market. Production proceeds without any sort of general plan. Each one
produces on his own account, regardless of the others; nobody knows what the
demand is for the commodity which he is producing or how many other
commodity producers are engaged in producing the same commodity, whether
he will be able to find a market for his commodity or whether he will be
reimbursed for the labour he has expended. With the development of
commodity production the power exercised by the market over the commodity
producers becomes ever greater.
This means that in commodity production based on private ownership of the
means of production there operates the economic law of competition and
anarchy of production. This law expresses the spontaneous nature of
production and exchange, the struggle between private commodity producers
for more advantageous conditions of production and sale of goods.
Under the conditions of anarchy of production which reign in commodity
production based on private property, the law of value appears as the
spontaneous regulator of production, acting through market-competition.
The law of value is an economic law of commodity production, by which the
exchange of commodities is effected in accordance with the amount of socially-
necessary labour expended on their production.
The law of value regulates the distribution of social labour and means of
production among different branches of commodity economy spontaneously,
through the price mechanism. Under the influence of fluctuations in the
relationship of supply and demand the prices of commodities continually
diverge either above or below their value. Divergences of prices from values
are not a result of some defect in the operation of the law of value, but, on the
contrary, are the only possible way in which it can become effective. In a
society in which production is in the hands of private owners, working blindly,
only the spontaneous fluctuations of prices on the market inform the
commodity producers whether they have produced goods in excess of the
effective demand by the population or have not produced sufficient to meet it.
Only the spontaneous fluctuations of prices around values oblige commodity
producers to extend or restrict the production of particular commodities. Under
the influence of price-fluctuations, commodity producers rush into those
branches which appear most profitable at the given moment because the prices
of commodities are higher than their values, and quit those branches where
the prices of commodities are lower than their values.
The operation of the law of value conditions the development of the
productive forces of commodity economy. As we have seen, the magnitude of
the value of a commodity is determined by socially-necessary labour-time. The
commodity producers who are the first to introduce a higher technique produce
their commodities at reduced cost, in comparison with that which is socially-
necessary, but sell these commodities at the prices which correspond to the
socially-necessary labour. When they sell their commodities they receive a
surplus of money arid grow rich. This impels the remaining commodity
producers to make technical improvements in their own enterprises. Thus, as a
result of the separate actions of separate commodity producers, each striving
for his own private advantages, progress takes place in technique and the
productive forces of society are developed.
As a result of competition and anarchy of production, the distribution of
labour and means of production between the various branches of economy and
the development of the forces of production are accomplished in a commodity
economy at the price of great waste of social labour, and lead to the
contradictions of this economy becoming more and more acute.
In conditions of commodity production based on private property, the
operation of the law of value leads to the rise and development of capitalist
relations. Spontaneous fluctuations of market prices around values, and
divergences of individual labour costs from the socially-necessary labour which
determines the magnitude of the value of a commodity, intensify the economic
inequality of the commodity producers and the struggle among them. This
competitive struggle leads to some commodity producers being ruined and
transformed into proletarians while others are enriched and become capitalists.
The operation of the law of value thus brings about a differentiation among the
commodity producers. Small production engenders capitalism and the
bourgeoisie continuously, daily, hourly, spontaneously and on a mass scale.
(Lenin, Left-wing Communism, an Infantile Disorder, Selected Works, 1951,
English edition, vol. II, Pt. 2, p. 344.)

Commodity Fetishism

In conditions of commodity production based on private ownership of the

means of production, the social link between people which exists in the
production process makes its appearance only through the medium of
exchange of commodities. The fate of the commodity producers is found to be
closely connected with the fate of the commodities which they create. The
prices of commodities continually change, independently of peoples will or
consciousness, and yet the level of prices is often a matter of life and death for
the commodity producers.
Relations between things conceal the social relations between people. Thus,
though the value of a commodity expresses the social relationship between
commodity producers, it appears as a kind of natural property of the
commodity, like, say, its colour or its weight. It is a definite social relation
between men, wrote Marx, that assumes, in their eyes, the fantastic form of
a relation between things. (K. Marx, Capital, Kerr edition, vol. I, p. 83.)
In this way, in a commodity economy based on private property, the
production-relations between people inevitably appear as relations between
things (commodities). In this transmutation of production-relations between
persons into relations between things is inherent also the commodity fetishism
which is characteristic of commodity production.1
Commodity fetishism is displayed with especial clarity in money. In
commodity economy money is a tremendous force, giving power over men.
Everything can be bought for money. It comes to seem that this capacity to
buy anything and everything is a natural property of gold, whereas in reality it
is a result of definite social relations.
Commodity fetishism has deep roots in commodity production, in which the
labour of a commodity producer appears directly as private labour, and its
social character is revealed only in the exchange of commodities. Only when
private property in the means of production is abolished does commodity
fetishism disappear.

1
The transmutation of production-relations between persons into relations between
things, characteristic of commodity production, is called commodity fetishism because of its
resemblance to the religious fetishism which is involved in the deification by primitive men of
objects which they themselves have made.
 BRIEF CONCLUSIONS
(1) The point of departure for the rise of capitalism was the simple
commodity production of craftsmen and peasants. Simple commodity
production differs from capitalism in that it is based upon the individual labour
of the commodity producer. At the same time it belongs fundamentally to the
same type as capitalist production, in as much as its foundation is private
ownership of the means of production. Under capitalism, when not only the
products of labour, but labour power too becomes a commodity, commodity
production acquires a dominant, universal character.
(2) A commodity is a product which is made for exchange, it appears from
one angle as a use-value and from the other as a value. The labour which
creates a commodity possesses a dual character. Concrete labour is labour
expended in a definite form; It creates the use-value of a commodity. Abstract
labour is the expenditure of human labour power in general; It creates the
value of a commodity.
(3) Value is the social labour of the commodity producers embodied in a
commodity. Value is an historical category which belongs only to commodity
economy. The magnitude of the value of a commodity is determined by the
labour which is socially-necessary for its production. The contradiction in simple
commodity economy consists in the fact that the commodity producers labour,
which is directly their own private affair, bears at the same time a social
character.
(4) The development of the contradictions of commodity production leads to
one commodity spontaneously being singled out from the rest and becoming
money. Money appears as the commodity which plays the role of universal
equivalent. Money fulfils the following functions: (1) measure of value, (2)
medium of circulation, (3) means of accumulation, (4) means of payment, and
(5) world-wide currency.
(5) With the growth of the circulation of money, paper money arises. Paper
money, which lacks any value of its own acts as a token for metallic money and
replaces it as the circulation medium. An exceptionally large issue of paper
money, causing its depreciation (inflation) leads to a lowering of the standard
of life of the working people.
(6) In a commodity economy based on private property in the means of
production, the law of value is the spontaneous regulator of the distribution of
social labour between branches of production. The operation of the law of value
causes a differentiation among the petty commodity producers and the
development of capitalist relations.
 CHAPTER V
CAPITALIST SIMPLE CO-OPERATION
AND MANUFACTURE

Capitalist Simple Co-operation

Capitalism at first subjects production to itself just as it finds it, i.e., with
the backward technique of handicraft and small-peasant economy; and only
later, at a higher level of its own development, does it refashion production on
new economic and technical foundations.
Capitalist production begins when the means of production are concentrated
in private hands while the workers, deprived of means of production, are
obliged to sell their labour power as a commodity. In handicraft production and
in peasant crafts fairly large workshops are formed, belonging to capitalists.
The capitalists extend the scale of production without at first changing either
the instruments or the methods of work used by the petty producers. This
primary stage in the development of capitalist production is called capitalist
simple co-operation.
Capitalist simple co-operation is that form of social labour under which the
capitalist exploits a more or less considerable number of wage-workers who
are all employed simultaneously and all of whom carry out the same kind of
work. Capitalist simple co-operation arises on the basis of the break-up of
petty commodity production. The first capitalist enterprises were founded by
merchant-engrossers1 and money-lenders, or by master craftsmen and artisans
who had become wealthy. Those who worked in these enterprises were ruined
craftsmen and journeymen, who no longer had the possibility of becoming
independent master craftsmen, together with the rural poor.
1
This word first appeared in England to describe traders who bought up corn or other
commodities from their producers to resell elsewhere: the term occurs in the fourteenth
century (they were also called badgers, forestallers or regraters in the fifteenth century).
But already in 1555 an Act of Parliament complained of rich and wealthy clothiers because of
their ingrossing of looms. These clothiers had begun in the fifteenth century by selling yarn
to the weavers who worked at home in their cottages, and then buying back the cloth. Later
the clothiers extended their operations at both ends. They bought the raw wool, sold it to the
spinners (also working at home.), and bought it back from them to resell to weavers as before.
Then they paid dyers, fullers, etc., to work on the cloth. Finally, the clothiers began to
assemble the weavers under one roof. See below, p. 96ff. Editor, English edition.
 Capitalist simple co-operation has certain advantages over petty commodity
production.
The bringing together of many workers in one enterprise makes for
economy in means of production. To build, to heat and to light one workshop
containing twenty persons costs less than to build and maintain ten workshops
with two workers in each. Expenses for tools, store-rooms and transport of
material and of the finished product are also reduced.
The results of the labour of an isolated craftsman depend to a considerable
extent on his individual characteristics-strength, dexterity, skill, etc. In
conditions of primitive technique differences between workers in these respects
are very great. Merely for this reason alone the situation of a petty producer is
extremely precarious. Commodity producers who expend in producing one and
the same kind of commodity more labour than is required in average conditions
of production are inevitably ruined. When many workers are together in a
workshop individual differences between them tend to be evened out. The
work of particular workers diverges in one direction or the other from the
average social labour, but the joint work of many simultaneously-employed
workers corresponds more or less to the average socially-necessary labour. For
this reason, the production and sale of commodities by capitalist workshops
become more regular and stable.
Under simple co-operation an economy of labour is achieved and the
productivity of labour grows.
Let us take as an example the shifting of bricks by hand carried out by a
chain of workers. Each separate worker accomplishes in this case one and the
same movement, but his actions form part of one common operation. As a
result the work goes much quicker than when each man separately shifts
bricks. Ten men working together produce in the course of a working day more
than the same ten men working separately, or than one man in the course of
ten working days of the same length.
Co-operation enables work to be carried out simultaneously over a large area,
for example, in the draining of marshes, the building of dams, canals and
railways and also makes it possible to expend a considerable mass of labour in
a small space, for example, in the construction of buildings or in the cultivation
of crops which require a great deal of labour.
Co-operation is of great importance in those branches of production where
certain jobs must be carried out in a short time, for instance, harvesting,
sheep-shearing, etc. The simultaneous employment of a large number of
workers enables such jobs to be completed in a reduced time and thereby
prevents the incurring of great losses.
Thus, co-operation gave a new social productive force to labour. The mere
simple bringing together of the forces of separate workers led to an increase in
the productivity of labour. This enabled the owners of the first capitalist
workshops to produce commodities more cheaply and to compete successfully
with the petty producers. The results of the new social productivity force of
labour were appropriated without compensation by the capitalists and served
to enrich them.

The Period of Capitalist Manufacture

 The development of simple capitalist co-operation led to the rise of
manufacture. Manufacture is capitalist co-operation based on division of labour
and handicraft technique. Manufacture as a form of capitalist production
prevailed in Western Europe approximately from the middle of the sixteenth
century to the last third of the eighteenth century.
Manufacture arose in two different ways.
The first way was the bringing together by a capitalist in one workshop of
craftsmen of different skills. In this way there arose, for example, a coach
manufactory, which brought together within its walls craftsmen who had
previously been independent: coachmakers, harnessmakers, uphofsterers,
locksmiths, coppersmiths, turners, braidmakers, glaziers, painters, polishers,
etc. In the manufactory the production of a coach was divided into a large
number of different, mutually-complementary operations, each of which was
carried out by a particular worker. As a result of this the previous nature of the
craftsmens work underwent a change. For instance, a worker employed as a
locksmith now carried out over a long period only certain definite operations
connected with the production of a coach, and gradually ceased to be the
locksmith who formerly had made a finished product all by himself.
The second way was the bringing together by a capitalist in a single
workshop of craftsmen all of one skill. Formerly each of these craftsmen had
independently carried out all the operations required to produce a given
commodity. The capitalist broke down the process of production in his
workshop into a series of separate operations, each of which was assigned to a
worker who specialised in it. Thus arose, for example, the manufacture of
needles. In a needle manufactory needles were passed through the hands of
seventy-two or more workers: one drew the wire, another straightened it, a
third cut it, a fourth sharpened the ends, and so on.
The division of labour in manufacture means the division of labour within an
enterprise for the production of one and the same commodity, as distinguished
from the division of labour in society between different enterprises for the
production of different commodities.
Division of labour within a manufactory presupposes concentration of the
means of production in the hands of a capitalist, who is at the same time the
owner of the commodities produced. The wage-worker, unlike the petty
commodity producer, does not produce the commodity independently; only the
common product of the labour of many workers is transformed into a
commodity. The division of labour within society presupposes the splitting up of
the means of production among commodity producers who are separate from
and independent of each other. The products of their labour, for instance, the
labour of a joiner, a tanner, a cobbler and tiller of the soil, appear as
commodities, and the link between the independent commodity producers is
effected by means of the market..
A worker who carries out in a manufactory a particular operation for the
production of a commodity, is a detail-worker. Constantly repeating one and
the same simple operation, he expends in it less time and energy than does
the craftsman who performs by turns a whole series of different operations. At
the same time, along with this specialisation, labour becomes more intensive.
Formerly the worker spent a certain amount of time in passing from one
operation to another, and in changing his tools. In a manufactory this waste of
working time was reduced. Gradually specialisation came to affect not only the
workers but also the instruments of production; they became more and more
closely adapted to that detail operation for which they were designed.
All this led to a further increase in the productivity of labour.

The production of needles furnishes a clear example. In the eighteenth century a small
manufactory, employing ten workers, by means of division of labour produced in one day
48,000 needles, i.e., 4,800 needles were produced per worker. Yet without division of labour
one worker could not have produced even twenty needles a day.

Specialisation of labour in the manufactory, associated with continual

repetition of one and the same uncomplicated set of movements maimed the
worker physically and spiritually. Workers appeared with curvature of the spine,
with hollow chests, etc. Thus, the growth of the productivity of labour in
manufactories was achieved at the expense of crippling the worker.
Manufacture converts the worker into a crippled monstrosity, by forcing his
detail dexterity at the expense of a world of productive capabilities and
instincts. (Marx, Capital, Kerr edition, vol. I, p. 396.)
Workers in manufacture were subjected to savage exploitation. Their
working day reached 18 hours or more; their wages were extremely low, and
the overwhelming mass of manufactory-workers lived in want; the new,
capitalist labour-discipline was introduced by the most ruthless measures of
compulsion and coercion.
The division of labour in manufacture, wrote Marx, creates new conditions
for the lordship of capital over labour. If, therefore on the one hand, it presents
itself historically as a progress and as a necessary phase in the economic
development of society, on the other hand, it is a refined and civilised method
of exploitation. (Marx, Capital, Kerr edition, Vol. I, p. 400.)
In slave-owning and feudal societies two forms of capital exist-merchant
and usurers capital. The rise of capitalist production signified the appearance
of industrial capital. Industrial capital is capital invested in the production of
commodities. One of the typical peculiarities of the manufacture period of
capitalism is a close and inseparable connection between merchant and
industrial capital. The owner of a manufactory was almost always an engrosser
as well. He resold raw materials to small commodity producers, distributed
material to their houses for them to work up, or else bought particular parts of
articles from small commodity producers, or bought finished articles from them
for resale later. This sale of raw material to arid purchase of products from
small commodity producers became interwoven with debt-enslavement, which
worsened the position of the small commodity producer to a tremendous
degree, leading to prolongation of his working day and lowering of the earnings
he received.

Capitalist Domestic Industry

In the period of capitalist manufacture the distribution of work to be done at

home developed on an extremely wide scale.
Capitalist domestic industry means the working-up at home, on piece-rates,
of material received from an entrepreneur. This form of exploitation was
encountered sporadically even under simple co-operation. It is found also in
the period of large-scale machine industry; but it is typical above all of
manufacture. Capitalist domestic industry here figures as an appendage to
manufacture.
In manufacture the division of labour breaks down the production of each
commodity into a series of distinct operations. Often the engrosser-
manufactory-owner found it profitable to set up a comparatively small
workshop, where only the assembly or the ultimate finishing of the commodity
was carried out. All the preparatory operations were performed by
handicraftsmen and artisans who worked at home but were completely
dependent on the capitalist. Frequently the artisans, scattered in different
villages, had dealings not with the owner of the assembly workshop but with
middlemen or foremen, who exploited them additionally.
The artisans and handicraftsmen working at home received from the
capitalist payment which was considerably less than that given to workers
employed in the capitalists workshop. Masses of peasants whose need for
money obliged them to seek extra work on the side were drawn into
handicraft. In order to earn a small sum of money, the peasant exhausted
himself and forced all his family to work as well. An excessively long working
day, unhealthy working conditions, the most ruthless exploitation-such were
the distinguishing features of capitalist domestic industry.

These features were found in the numerous handicraft industries of Tsarist Russia.
Engrossers who became in practice the bosses of handicraft industry in a given village or
district extensively introduced division of labour among the craftsmen. For example, in the
Zavyalovs establishment at Pavlovo (where more than 100 workers were employed in the
assembly workshop in the 1860s) an ordinary penknife passed through the hands of eight of
nine craftsmen. On it worked a smith, a blade-maker, a handle-maker, a temperer, a polisher, a
finisher, a leveller and a stamper. Yet a substantial section of the detail-workers were employed
not in the capitalists workshop but in their own houses. A similar picture was shown by the
carriage-making industry, feltmaking, a number of woodworking handicrafts, shoemaking,
button-making, etc.
Numerous examples of savage exploitation of handicraftsmen are given by V.I. Lenin in his
work The Development of Capitalism in Russia. Thus, in Moscow Province at the beginning of
the 1880s, in unreeling cotton thread, and in knitting and other industries employing women,
37,500 women workers were engaged. Children began to work at the age of five or six. The
average daily wage was thirteen kopeks; the working day lasted up to eighteen hours.

Role of Manufacture in History

Manufacture was the transitional form between the petty production of

artisans and craftsmen and large-scale capitalist machine industry. A
manufactory was akin to handicraft in that its basis remained hand technique,
and to a capitalist factory in that it meant large-scale production based on
exploitation of wage-workers.
The division of labour in manufacture was a notable step forward in the
development of the productive forces of society. But manufacture, based on
hand labour, was not in a position to supplant petty production. Typical of the
manufacturing period of capitalisms development was a small number of
relatively large-scale establishments alongside a considerable number of small
ones. While a certain share of the commodities were produced in
manufactories, the overwhelming mass of them were provided as before by
craftsmen and artisans, who were dependent in varying degrees upon capitalist
engrossers, putters-out and manufacturers. Thus, manufacture could not lay
hold of the whole field of social production. It was a kind of superstructure; the
basis remained as before, petty production with its primitive technique.
The role played by manufacture in history was that it prepared the
conditions necessary for the passage to machine production. In relation to this,
three circumstances were of especial importance. First, manufacture, bringing
the division of labour to a high level, simplified many working operations. They
were reduced to such simple movements that it became possible to replace the
workers hands by machines. Second, the development of manufacture led to
specialisation of the working tools, to their becoming considerably improved, as
a result of which an advance from hand-operated tools to machines became
possible. Third, manufacture prepared cadres of skilled workers for large-scale
machine industry, thanks to their prolonged specialisation in the carrying out of
particular operations.

Petty commodity production, capitalist simple co-operation and manufacture, with its
appendage, capitalist domestic industry, are widespread at the present day in economically
under-developed countries such as India, Turkey, Persia, etc.

Disintegration of the Peasantry. Transition from Labour-

Service Economy to Capitalist Economy

In the manufacturing period of the development of capitalism industry

became more and more separated from agriculture. The growth in the social
division of labour led to not only industrial products but also agricultural
products being transformed into commodities. Specialisation of districts by
crops and branches took place in agriculture. Districts where commercial
agriculture was carried on made their appearance: flax-cultivation, sugar-beet
production, cotton-growing, tobacco-growing, dairying, cheese-making, etc. On
this basis exchange developed not merely between industry and agriculture but
also between different branches of agriculture.
The further commodity production penetrated into agriculture, the fiercer
became the competition between the tillers of the soil. The peasants fell into
greater and greater dependence upon the market. Spontaneous fluctuation of
prices on the market intensified and made more acute the inequality of
property among the peasants. Spare money accumulated in the hands of the
upper handful of well-to-do in the countryside. This money served them as a
means to enslave and exploit the poorer peasants, becoming transformed into
capital. One of the ways in which this enslavement was effected was the
purchasing for trivial sums of the products of the peasants labour. Gradually
the ruin of the peasantry attained such a level that many of them were forced
completely to abandon their holdings and resort to selling their labour-power.
Thus, with the development of the social division of labour and with the
growth of commodity production, a process of differentiation of the peasantry
took place; capitalist relations were formed in the countryside, new social
types of rural population, the classes of capitalist society, came into being-a
rural bourgeoisie and an agricultural proletariat.
 The rural bourgeoisie (or kulaks) carry on commodity production on the
basis of employing hired labour, exploiting the permanent rural labourers and
(still more) the day-labourers and other temporary workers whom they take on
for seasonal field work. They concentrate in their possession a considerable
share of the land (including leased land), draught animals and agricultural
produce. They also own enterprises for the working-up of raw material, mills,
threshing-machines, pedigree stock, etc. They usually also function as the
village moneylenders and shopkeepers. All this serves as a means of exploiting
the poor and a considerable section of the middle peasantry.
The agricultural proletariat is the mass of labourers, deprived of means of
production and exploited by the landlords and rural bourgeoisie. The basic
source of livelihood of the agricultural proletarian is the sale of his labour-
power. The typical agricultural proletarian is a hired worker with an allotment.
The tiny scale of the farming which he carries on on his patch of land, and his
lack of draught animals and implements, inevitably compel a peasant of this
kind to sell his labour-power.
Very close to the agricultural proletariat are the rural poor. The poor
peasant has a small plot of land and a small number of cattle. The grain which
such a peasant can grow is not sufficient for his needs. The money which he
needs for food and clothing, to run his holding and pay his taxes, he is obliged
to earn. to a substantial extent by working for wages. A peasant like this has
already half-ceased to be his own master and is a rural semi-proletarian. The
standard of living of the poor peasant, as of the rural proletarian, is extremely
low and is inferior to that of the industrial worker. The development of
capitalism in agriculture leads to a continual growth in the ranks of the rural
proletariat and poor peasantry.
An intermediate position between the rural bourgeoisie and the poor
peasants is occupied by the middle peasantry.
The middle peasantry carry on agriculture on the basis of their own means
of production and their personal labour. Only under favourable conditions does
the labour of the middle peasant on his holding guarantee the livelihood of his
family. Hence the instability of the middle peasants situation. In its social
relationships this group oscillates between the higher group towards which it
gravitates and into which only a fortunate minority succeeds in entering, and
the lower group into which the whole process of evolution is forcing it. (Lenin,
Development of Capitalism in Russia, Selected Works, 12-vol. edition, vol. I,
p. 235.) A process of ruining and erosion of the middle peasantry goes on.
Capitalist relations in the agriculture of bourgeois countries are interwoven
with survivals of serfdom. The bourgeoisie when it came to power did not, in
the majority of countries, abolish large-scale feudal landownership. The
landowners estates gradually adapted themselves to capitalism. The
peasantry, freed from servile dependence but deprived of a substantial part of
the land, suffocated from land hunger. It was obliged to lease land from the
landlords on extortionate terms.

In Russia, for example, after
of the peasants by the landlords
in return for the lease of land or
the landlords farm, using his
implements.
the reform of 1861, the most widespread form of exploitation
was work-payment, by which the peasant was obliged, either
to repay a loan contracted on extortionate terms, to work on
own means of production-draught animals and primitive
The disintegration of the peasantry undermined the foundations of the
landlords economy, which was carried on by means of work-payment,
exploiting an economically dependent peasantry, and was based on backward
technique. The well-to-do peasant was in a position to rent land for money and
so did not need to accept extortionate terms of lease which obliged him to
perform work-payment. The poor peasant was also unsuitable for the work-
payment system, but for a different reason: lacking means of production, he
was transformed into a wage-worker. The landlord could use for work-payment
mainly the middle peasantry. But the development of commodity economy and
commercial agriculture, by ruining the middle peasantry, undermined the work-
payment system of economy. The landlords extended their employment of
hired labour; which was more productive than the labour of dependent
peasants; the importance of the capitalist system of economy grew while that
of the work-payment system declined. Work payment, however, as a direct
survival of week-work was, preserved for a long time alongside the capitalist
system of economy.

Formation of a Home Market for Capitalist Industry

With the development of capitalism in industry and agriculture there took

place the formation of a home market.
Already in the period of manufacture a number of new branches of
industrial production arose. One after another various forms of industrial
processing of agricultural raw material were separated off from agriculture.
With the growth of industry the demand for agricultural products continually
grew. In connection with this a widening of the market took place. Districts
which specialised in the production, e.g., of cotton, flax or sugar-beet, or in
stock-raising, had a demand for grain. Agriculture increased its demand for
various products of industry.
The home market for capitalist industry is formed by the very development
of capitalism, by the disintegration of the petty commodity producers. The
divorcement of the direct producer from the means of production, i.e., his
expropriation, which signifies the transition from simple commodity production
to capitalist production (and which is the necessary condition for this
transition), creates the home market. (Lenin, Development of Capitalism in
Russia, Selected Works, 12-vol. edition, vol. I, p. 223.) The process of
formation of the home market bore a two-fold character. On the one hand, the
bourgeoisie of town and country presented a demand for means of production:
improved implements of labour, machines, raw materials, etc., needed to
extend the existing capitalist enterprises and build new ones. The bourgeoisies
demand for consumer goods increased. On the other hand, the increase in the
numbers of the industrial and agricultural proletariat, inseparably connected
with the disintegration of the peasantry, was accompanied by an increase in
the demand for commodities serving as means of subsistence for the workers.
Manufacture, based as it was on primitive technique and hand labour, was
not in a position to satisfy the growing demand for industrial commodities. The
economic necessity arose to pass over to large-scale machine production.
 BRIEF CONCLUSIONS

(1) Capitalist simple co-operation is a form of production based on

exploitation by a particular capitalist of a more or less substantial number of
simultaneously-employed wageworkers who all carry out work of the same
kind. Capitalist simple co-operation secured economy in means of production,
created a new social productive force of labour, reduced the expenditure of
labour per unit of production. The results of the growth in the productive power
of social labour were appropriated by the capitalists without compensation.
(2) Manufacture is large-scale capitalist production based on hand
technique and division of labour among wage-workers. The division of labour
under manufacture considerably enhanced the productivity of labour, while at
the same time mutilating. the wage-worker by dooming him to an extremely
one-sided development. Manufacture created the necessary prerequisites for
the transition to large-scale machine industry.
(3) The development of commodity production leads to disintegration of the
peasantry. A small upper section of countryfolk pass into the ranks of the
bourgeoisie, while a substantial section of the peasantry pass into the ranks of
the proletariat-urban and rural; the poor grow in numbers; the broad
intermediate stratum of middle peasants falls into ruin. The disintegration of
the peasantry undermines the foundations of the work-payment system. The
landlords increasingly pass over from labour-service economy to capitalist
economy.
(4) The home market is formed by the very development of capitalism.
Extension of the home market signifies an increase in the demand for means of
production and for means of subsistence. Manufacture, based on backward
technique and hand labour, was not in a position to satisfy the demand for
industrially produced commodities presented by the growing market. The need
arose to pass on to machine industry.
 CHAPTER VI

THE MACHINE PERIOD OF CAPITALISM

Transition from Manufacture to Machine Industry

So long as production remained based on hand labour, as was the case in

the period of manufacture, capitalism could not achieve a radical revolution in
the economic life of society. Such a transformation was effected with the
transition from manufacture to machine industry, which began to take place in
the last third of the eighteenth century and spread throughout the principal
capitalist countries of Europe and the U.S.A. during the nineteenth century.
The material, technical foundation for the revolution was the machine.
Every developed machine consists of three parts: (1) the motor mechanism,
(2) the transmitting mechanism, (3) the working machine.

The motor mechanism acts as the moving force of the entire mechanism. It either
generates the driving power itself (e.g., the steam engine), or obtains it from outside, from
some available force of nature (e.g., the water-wheel, moved by the force of falling water).
The transmitting mechanism consists of all kinds of devices (transmissions, cog-wheels,
belts, electrical systems, etc.) which regulate movement, change its form where necessary
(e.g., transforming a straight-line movement into a circular one), distribute it and transfer it to
the working machine. Like the motor mechanisms, the transmitting mechanism serves to set
the working machine in motion.
The working machine acts directly on the object of labour and produces the changes
needed in it in accordance with a defined aim. If the working machine is examined more closely
there will be found in it, albeit often in very altered forms, the same tools on the whole as are
used in hand work. But in every case these are not hand-work tools any more, they are tool-
mechanisms, mechanical tools. The working machine was the point of departure of the
revolution which led to the replacement of manufacture by machine production. After
mechanical tools had been invented radical changes were introduced in the construction of the
driving and transmitting mechanisms.

In its insatiable pursuit of profit capital acquired in the machine a mighty

means of increasing the productivity of labour. First, the use of machines,
which put a multitude of tools into operation simultaneously, freed the
production process from the narrow limits imposed by the limitations of the
human limbs. Second, the use of machines provided for the first time the
possibility of employing in production tremendous new sources of energy-the
motive power of steam, gas and electricity. Third, the use of machines enabled
capital to place science at the service of production, extending the power of
man over nature and revealing ever new possibilities of raising the productivity
of labour. On the basis of large-scale industry the domination of the capitalist
mode of production was consolidated. In large-scale machine industry
capitalism found Its appropriate material and technical foundation.

The Industrial Revolution

Large-scale machine industry began in Britain. Favourable historical

conditions had been formed in that country for a rapid development of the
capitalist mode of production: the early abolition of serfdom and ending of
feudal disunity, the victory of the bourgeois revolution in the seventeenth
century, the forcible dispossession of the peasantry, and also the accumulation
of capital by way of an extensive development of trade and of the plundering of
colonies.
In the middle of the eighteenth century Britain was the country with the
largest number of manufactories. The most important branch of industry was
textile production. It was in this industry that the industrial revolution began
which took place in Britain in the course of the last third of the eighteenth
century and the first quarter of the nineteenth.
The extension of the market and the capitalists striving for profit made
necessary an improvement in technique of production. In the cotton industry,
which was developing more rapidly than other branches, hand labour
predominated. The principal operations in the cotton industry are spinning and
weaving. The product of the spinners work serves as the material of the
weavers work. The increase in the demand for cotton Cloth pressed in the first
place on the technique of weaving: in 1733 the flying shuttle was invented,
which doubled the productivity of the weavers labour. This led to spinning
lagging behind weaving. In the manufactories the looms often stood idle for
lack of yarn. An urgent need to improve spinning technique arose.
This task was solved by means of the invention (in 1765-7) of spinning
machines, each of which had fifteen to twenty spindles. The driving power of
the first machines was at first provided by human beings or draught animals,
but later machines appeared which were operated by water power. Further
technical improvement led not only to an increase in the amount of yarn
produced but also to improvement in its quality. At the end of the eighteenth
century there were already in existence spinning machines with up to 400
spindles. As a result of these inventions the productivity of labour in spinning
greatly increased.
There now arose in the textile industry another discrepancy: spinning had
outstripped weaving. This discrepancy was overcome by the invention in 1785
of a mechanical loom. After a number of improvements the mechanical loom
was introduced on a wide scale in Britain, and by the 1840s had completely
ousted hand-weaving. The processes of working up cloth-bleaching, dyeing,
printing-also underwent radical changes. The application of chemistry
shortened the time taken by these processes and improved the quality of the
product.
The first textile factories were built on the banks of rivers and the machines
were driven by means of water-wheels. This greatly restricted the possibility of
using machine technique. A new kind of prime mover was needed which was
not dependent on a particular place or season. Such a prime mover was the
steam engine.

The steam engine was invented in its primary form as far back as the manufacturing
period, and from 1711 to 1712 was in use in the English mining industry in the form of a pump
for extracting water from mines. The industrial revolution in England gave rise to a demand for
a universal steam engine. This task was accomplished in England in the 1780s through the
perfecting of the steam engine already in existence.

The introduction of the steam engine was of enormous importance. The steam
engine was a prime mover of universal significance, free from the numerous
shortcomings inherent in a water-driven engine. Using coal and water, the
steam engine produces a motive force which is wholly under mans control.
This machine is movable; it frees industry from its attachment to natural
sources of power and makes it possible to concentrate industry in any place
desired.
The steam engine became widespread not only in Britain but also beyond its
bounds, creating the prerequisites for the appearance of large-scale factories
with many machines and a large number of workers.
Machines revolutionised production in all branches of industry. Not only did
they seize hold of cotton production, they also came to be used in the woollen,
linen and silk industries as well. Means were quickly found of using steam
engines in transport: in 1807 the first steamboat was built in the U.S.A., and in
1825 in Britain the first railway was built.
At first machines were produced in manufactories by means of hand labour.
They were expensive and were insufficiently powerful and precise. The
manufactories could not produce such a quantity of machines as was required
by rapidly-growing industry. This task was solved by going over to production
of machines by machines. There arose a new, rapidly-developing branch of
industry-engineering. The first machines were made mostly of wood. Later the
wooden parts of machines were replaced by metal ones. The replacement of
wood by metal, which increased the longevity and durability of machines,
revealed the possibility of working at such speed and with such intensity as
previously had been unthinkable. At the beginning of the nineteenth century
there were invented mechanical hammers, presses and metal-working lathes:
first turners lathes, then milling and boring-machines.
For the production of machines, locomotives rails and steam-ships an
enormous quantity of iron and steel was needed. Metallurgy began to develop
quickly. Of great importance in the development of metallurgy was the
discovery of a method of smelting iron ore with mineral fuel instead of with
charcoal. The blast-furnace was increasingly improved. In the 1830s cold blast
began to be replaced by hot, which quickened the blast process and gave a
large saving of fuel. New, improved methods of smelting steel were discovered.
The spread of the steam engine and the growth of metallurgy created a need
for enormous quantities of coal, which led to a rapid growth of the coal
industry.
As a result of the industrial revolution Britain was transformed into the
industrial workshop of the world. After Britain, machine production spread in
other countries of Europe and in America.

The industrial revolution in France took place in the course of the few decades immediately
following the bourgeois revolution of 1789-94. The capitalist factory became predominant in
French industry only in the second half of the nineteenth century:
In Germany, owing to its feudal disunity and the continued survival of relations originating
in serfdom, the industrial revolution took place later than in Britain and France. Large-scale
industry began to develop in Germany only from the 1840s onward and advanced especially
quickly after the unification of Germany into a single State in 1871.
In the U.S.A. large-scale industry arose at the beginning of the nineteenth century.
American machine industry began to develop rapidly after the Civil War of 1861-5. When this
happened the technical achievements of British industry were widely drawn upon, together with
an influx of surplus capital and of cadres of skilled workers from Europe.
In Russia the transition from manufacture to the machine stage of production began before
the abolition of serfdom, but developed to its full extent in the first decades after the Reform of
1861. However, even after the fall of serfdom numerous survivals of the feudal-serf-owning
system in the country hindered the transition of industry from hand to machine production.
This circumstance affected to an especially striking extent the mining industry of the Urals.

Capitalist Industrialisation

The industrial revolution marked the beginning of capitalist industrialisation.

The basis of industrialisation is heavy industry, the production of the means of
production.
Capitalist industrialisation takes place spontaneously, in response to the
capitalists drive for profit. The development of large-scale capitalist industry
usually begins with the development of light industry, i.e., the branches
producing consumer goods. These branches require a smaller investment of
resources and capital circulates faster in them than in heavy industry, i.e., in
the branches producing means of production-machines, metals, fuel. Heavy
industry begins to be developed only at the end of a more or less long period
of time during which light industry piles up profits. These profits are gradually
pumped into heavy industry. Thus capitalist industrialisation is a process which
takes many decades.

In Britain, for example, the textile industry for a long time remained the most developed
branch of industry. In the second half of the century. heavy industry began to play the
predominant role. The same order of succession in the development of branches of industry
occurred in the other capitalist countries too.
In the second half of the nineteenth century metallurgy continued to develop; the
technique of smelting metal improved, the size of blast-furnaces increased. The production of
pig-iron grew. In Britain the production of pig-iron increased from 193,000 tons in 1800 to
2,285,000 tons in 1850, 6,059,000 tons in 1870 and 7,873,000 tons in 1880. In the U.S.A. it
grew from 41,000 tons in 1800 to 573,000 tons in 1850, 1,692,000 tons in 1870 and
3,897,000 tons in 1880.

Down to the last third of the nineteenth century the steam engine remained
the only kind of engine used in large-scale industry and transport. Steam
played a very great role in the development of machine industry. Throughout
the nineteenth century further improvement of the steam engine continued;
the capacity of steam-driven machines increased and also the degree of
utilisation of heat energy. In the 1880s the steam turbine came into being.
Thanks to its advantages it began to oust the steam engine from a number of
branches.
However, the more large-scale industry grew, the more rapidly did the
inadequacy of steam as a motive force become apparent. A new kind of mover
was invented-the internal combustion engine, at first using gas (1877), and
then an engine working on liquid fuel, the diesel (1893). In the last third of the
nineteenth century a new and powerful force appeared in the arena of
economic life, which revolutionised production still more-electricity.
In the nineteenth century machine technique laid hold of one branch of
industry after another. The mining industry-extraction of ores and of coal-
developed. In connection with the invention of the internal combustion engine
the extraction of petroleum increased. The chemical industry underwent
extensive development. The rapid growth of large-scale machine industry was
accompanied by intense building of railways.
Capitalist industrialisation is brought about both by means of the exploitation of
the wage-workers and the ruin of the peasantry of the country concerned and
also by means of the plundering of the working people of other lands,
especially colonies. It leads inevitably to a sharpening of the contradictions of
capitalism, to the impoverishment of millions of workers, peasants and
craftsmen.
History has seen various paths of capitalist industrialisation. The first path
of capitalist industrialisation is the path of conquest and plunder of colonies.
That was how Britains industry developed. Having conquered colonies in all
parts of the world, Britain pumped enormous profits out of them for two
centuries and invested the profits in her own industry.
The second path is the path of war and the imposing of indemnities by
victor countries on defeated countries. Thus Germany, after defeating France in
the Franco-Prussian War, obliged her to pay five thousand million francs as
indemnity and invested these in her own industry.
The third path is the path of enslaving concessions and loans, which lead to
the economic and political dependence of backward countries upon the
capitalistically developed countries. Tsarist Russia, for example, granted
concessions and obtained loans from the Western Powers on extortionate
terms, endeavouring in this way to advance gradually along the path of
industrialisation.
In the history of various countries these different paths of capitalist
industrialisation were often interwoven and supplemented each other. The
history of the economic development of the U.S.A. offers an example. The
large-scale industry of the U.S.A. was created with the aid of foreign loans and
long-term credits, and also by way of unrestrained plundering of the
indigenous population of America.
Despite the development of machine industry in the bourgeois countries, a
very great part of the population of the capitalist world continues to live and
work under conditions in which primitive hand technique predominates.
 Growth of Towns and Industrial Centres. Formation of the
Class of Proletarians

Capitalist industrialisation caused a rapid growth of towns and industrial

centres. The number of large towns in Europe (with populations exceeding
100,000) increased sevenfold during the nineteenth century. The proportion of
the urban population grew unceasingly at the expense of the agricultural
population. In Britain as early as the middle of the nineteenth century and in
Germany by about the beginning of the twentieth century, more than half of
the entire population was concentrated in towns.
In the period of capitalist manufacture, the masses of wageworkers did not
yet represent a settled class of proletarians. The workers in the manufactories
were relatively few and to a considerable degree they were connected with
agriculture dispersed among a multitude of small workshops and kept apart by
all sorts of narrow craft interests.
As a result of the industrial revolution and the further development of
machine industry an industrial proletariat was formed in the capitalist
countries. The working class grew rapidly in numbers, its ranks being
continually reinforced from those of the peasantry and craftsmen who were
being ruined. With the growth of large-scale machine-industry the local, craft
and caste interests and prejudices of the earliest generations of workers were
gradually outlived, along with their utopian aspirations to get back to the lost
position of the medieval craftsman. The mass of workers were welded into a
single class, the proletariat. Describing the formation of the proletariat as a
class, Engels wrote:

Only, the development of capitalist production, modern industry and

agriculture on a large scale, gave continuity to its existence, enlarged its
numbers and formed it as a special class with special interests and with a
special historical mission. Engels, The Workers Movement in America,
Marx and Engels, Works, Russian edition, vol. XVI, Pt. 1, p. 287.)

In Britain the number of the workers in industry and transport in thE second decade of the
nineteenth century amounted to about two millions; during the ensuing hundred years the
number grew more than threefold.
In France the workers in industry and transport in the 1860s numbered about two millions,
but at the beginning of the twentieth century there were nearly 3,800,000.
In the U.S.A. the number of workers in industry and transport amounted in 1859 to
1,800,000 and in 1899 to 6,800,000. In Germany the number of workers in industry and
transport grew from 700,000 in 1848 to 5 millions in 1895.
In Russia after the abolition of serfdom the process of forming a working class went
forward rapidly. In 1865,706,000 workers were employed in large factories and works, in
mining and on the railways in 1890 they numbered 1,433,000. Thus, the number of workers in
large-scale capitalist enterprises more than doubled in twenty-five years. Towards the end of
the 1890s the number of workers in large factories and works, in mining and on the railways
had reached 2,207,000 in fifty provinces of European Russia, and in Russia as a whole had
reached 2,792,000.

The Capitalist Factory. The Machine as a means whereby

 Capital exploits Wage Labour

The capitalist factory is a large-scale industrial enterprise based on the

exploitation of wage-workers and using a system of machinery for the
production of commodities.
A system of machinery is an aggregate of working machines which
simultaneously carry out uniform production operations (e.g., looms of the
same type), or an aggregate of working machines which, though of different
kinds, are complementary to each other. A system of machinery of different
kinds means a combination of detail-working machines, based on a distribution
of production operations amongst them. Each detail machine supplies work to
another machine. The machines operate simultaneously, the product
continuously going through different stages of the production process and
passing from one phase of production to another.
The introduction of machines ensures a tremendous growth in the
productivity of labour and reduction in the value of commodities. The machine
makes it possible to produce the same number of commodities with very much
less expenditure of labour, or to produce with the same expenditure of labour a
considerably larger number of commodities.

In the nineteenth century the working-up of a given quantity of cotton into yarn, using a
machine, required only 1-180th of the labour-time taken when a hand-operated spinning wheel
was used. Using a machine one adult or adolescent worker could in one hour print as many
four-coloured chintzes as previously, by hand labour, could be printed by 200 adult workers. In
the eighteenth century, under the manufacturing division of labour, a worker made 4,800
needles a day; in the nineteenth century one worker, operating four machines at once,
produced up to 600,000 needles a day.

Under the capitalist mode of production all the advantages of introducing

machines are appropriated by the owners of these machines, the capitalists,
whose profits grow.
The factory is the highest form of capitalist co-operation. Capitalist co-
operation, as joint work carried out on a relatively large scale, makes
necessary a special function of management, supervision, co-ordination of the
separate jobs. In a capitalist enterprise the function of management belongs to
the capitalist and has specific features which figure at the same time as
functions of exploitation of the wage-workers by capital. The capitalist is not a
capitalist because he manages an industrial enterprise; on the contrary, he
becomes the manager of an enterprise because he is a capitalist.
Already under simple capitalist co-operation the capitalist freed himself
from physical work. With the growth in the scale of co-operation of labour he
frees himself also from the function of direct and constant supervision of his
workers. He transfers these functions to a special category of wage-workers-
managers and foremen-who give orders in the enterprise in the capitalists
name. By its very nature, capitalist management is despotic.
With the transition to the factory the creation by capital of a special
capitalist labour-discipline is complete. Capitalist labour-discipline is the
discipline of hunger. Under it, the worker lives constantly under the threat of
dismissal from the factory, in fear of finding himself in the ranks of the
unemployed. Barrack discipline is characteristic of the capitalist factory.
Workers are punished by means of money fines and deductions from. their
wages.1
In itself the machine is a mighty means of lightening labour and enhancing
its productivity. Under capitalism, however, the machine serves as a means of
intensifying the exploitation of wage-labour.
From its very first introduction the machine became a competitor with the
worker. The capitalist rise of machines first and foremost deprives of their
livelihood tens and hundreds of thousands of hand workers, who became
redundant. For example, when steam-operated looms were installed on a large
scale, 800,000 English and Scotch weavers were thrown on to the street.
Millions of weavers were condemned to hunger and death in India because
Indian hand-produced cloth could not stand up to the competition of British
machine-made cloth. In consequence of the increasing use of machines and
their increasing improvement, more and more wage-workers are ousted by
machines and thrown out of the capitalist factories on to the streets, filling the
ranks of the growing army of unemployed.
The machine simplifies the production process and makes superfluous the
use of great muscular strength by the worker. For this reason, with the
transition to machine technique, capital extensively draws women and children
into production. The capitalist obliges them to work under hard conditions and
for wretchedly small pay. This results in a high level of child mortality in
working-class families and the physical and moral crippling of women and
children.
The machine opens up extensive possibilities of reducing the labour-time
needed for the production of a commodity and so of shortening the working
day. Under capitalism, however, it is used as a means of lengthening the
working day. In the pursuit of gain the capitalist tries to use his machines to
the full. First, the longer a machine is in paying use during a working day, the
sooner he recovers its cost. Second, the longer the working day and the more
fully the machine is used, the less danger there is that the machine will
become technically obsolete and that other capitalists will succeed in adopting
better or cheaper machines and so place themselves in more advantageous
conditions of production. The capitalist strives therefore to lengthen the
working day to its maximum.
In the capitalists hands the machine is used to pump more labour out of
the worker during a given period of time. The excessive intensity of labour,
overcrowding in the factory premises, the inadequacy of air and light, the
absence of measures necessary for ensuring safety at work lead to mass
incidence of occupational diseases among workers, the undermining of their
health and the shortening of their lives.
Machine technique opens up a wide field for the utilisation of science in the
production process and for making labour more intelligent and creative.
Capitalist use of machines, however, leads to the worker becoming transformed

1
The British reader is reminded that these conditions and those described in subsequent
passages, which were universal in British industry 100-I50 years ago and survived in many
trades much later, may have been modified by organised pressure of the British working class,
but still exist today in many capitalist countries -including British colonies-Editor, English
edition.
into an appendage to the machine. To the workers lot falls only monotonous
and exhausting physical work. Mental work becomes the privilege of certain
special workers: engineers, technicians, scientists. Science serves capital. The
antagonism between physical and mental labour continually deepens.
The machine signifies in itself a strengthening of mans power over the
forces of nature. By raising the productivity of labour the machine increases
societys wealth. But this wealth is taken by the capitalists, and the position of
the working class, the principal productive force of society, continually worsens.
Marx showed in Capital that it is not machines themselves that are the enemies
of the working class but the capitalist social order under which they are used.
He wrote that

machinery, considered alone, shortens the hours of labour, but, when in

the service of capital, lengthens them; in itself it lightens labour, but when
employed by capital, heightens the intensity of labour; in itself it is a victory
of man over the forces of nature, but in the hands of capital, makes man
the slave of these forces; in itself it increases the wealth of the producers,
but in the hands of capital makes them paupers. (Marx, Capital, Kerr
edition, vol. I, p. 482.)

From the very first rise of capitalist relations there began the class struggle
between the wage-workers and the capitalists. It went on during the whole of
the period of manufacture and with the transition to machine production
assumed large dimensions and unprecedented sharpness.

The way in which the as yet immature labour movement expressed its protest against the
baneful effects of the capitalist use of machine technique was to try to destroy the machines.
The first cloth-shearing machine, invented in 1758, was set on fire by workers whom the
introduction of this machine had put out of work. At the beginning of the nineteenth century an
extensive machine-wrecking movement developed in the industrial areas of Britain, directed
first and foremost against the steam-driven looms. The working class needed a certain amount
of time and experience to understand that the oppression and poverty under which it suffered
were due not to the machines themselves but to the use made of them by the capitalists.

The capitalists made extensive use of the machine as a potent weapon for
putting down the periodical workers outbreaks, strikes, etc., directed against
the dictatorship of capital. After 1830 a substantial number of inventions were
evoked in Britain directly by the requirements of the class struggle of the
capitalists against the workers, the endeavour being made by the capitalists,
through reducing the number of workers employed and using labour which was
less skilled, to break the resistance of the workers to their oppression by
capital.
Thus the capitalist use of machines causes a, worsening in the position of
the workers and a sharpening in the class contradictions between capital and
labour.

Large-scale Industry and Agriculture

The development of large-scale industry led to machines beginning to be

introduced in agriculture as well. One of the weightiest advantages of large-
scale agricultural production is that it makes possible the use of machines.
Machines increase the productivity of labour in agriculture to an enormous
extent. They are, however, beyond the resources of the petty peasant
economy, for the purchase of machines demands a substantial outlay. In
addition, the machine can be used effectively over large cultivated areas, for
introducing industrial crops, etc. In large-scale economy based on machine
technique the expenditure of labour per unit of production is markedly less
than in petty peasant economy based on backward technique and hand labour.
Consequently, petty peasant economy cannot stand up to the competition of
large-scale capitalist economy.
The widespread use of agricultural machinery under conditions of capitalism
hastens the process of differentiation among the peasantry. The systematic
employment of machinery in agriculture squeezes out the patriarchal middle
peasant as inexorably as the steam-driven loom squeezes out the hand-loom
weaver. (Lenin, Development of Capitalism in Russia, Selected Works, 12-
vol. edition, vol. 1, p. 274.) Capitalism, in elevating the technique of
agriculture and advancing it, ruins the mass of petty producers. Yet hired
labour-power is so cheap in agriculture that many large-scale estates do not
use machines but prefer to use hand labour. This hinders the development of
machine technique in agricultural production.
Capitalist use of machines in agriculture is inevitably accompanied by
intensified exploitation of the agricultural proletariat through raising the
intensity of work. For instance, a kind of reaping machine which was widely
used in its time was called the brow-warmer because working with it
demanded great physical exertion.
In the machine period of capitalism the separation of industry from
agriculture is completed and the antithesis between town and country
deepened and made more acute. Under capitalism agriculture increasingly lags
behind industry in its development. Lenin declared that the agriculture of the
capitalist countries at the beginning of the twentieth century was at about the
stage of manufacture so far as its technical and economic level was concerned.

Under capitalism the introduction of machine technique in agriculture proceeds much more
slowly than in industry. While the steam engine made possible fundamental technical
transformations in industry, in agriculture it was used only in the form of the steam-driven
threshing machine. In the comprehensive mechanical thresher were later combined the
threshing, cleaning and sorting of the grain. Only in the last quarter of the nineteenth century
were horse-drawn machines -for grain-harvesting-harvester-binders brought into wide use. The
caterpillar tractor was invented as far back as the 1880s and the wheeled tractor at the
beginning of the twentieth, but the more or less extensive employment of the tractor on large
capitalist farms began only in the 1920S, mainly in the U.S.A.
Down to the present day the basic motive power in the agriculture of the majority of
capitalist countries is provided by draught animals, and the implements with which the soil is
worked are the horse-drawn plough, harrow and cultivator.

Capitalist Socialisation of Labour and Production. Limits to

the Use of Machines under Capitalism

On the basis of machine technique great progress was achieved under

capitalism in the development of the productive forces of society as compared
with the feudal mode of production. The machine was a revolutionary force
which transformed society.

The transition from manufacture to the factory marks a complete

technical revolution, which eliminates the age-old skill of the
handicraftsman, and this technical revolution is followed by an extremely
sharp change in the social relations in production, by a final rupture
between the various groups taking part in production, a complete rupture
with tradition, the intensification and expansion of all the gloomy sides of
capitalism, and at the same time the mass socialisation of labour by
capitalism. Thus, large-scale machine industry is the last word of capitalism,
the last word of its negative and positive aspects. (Lenin, Development of
Capitalism in Russia, Selected Works, 12-vol. edition, vol. 1, p. 303.)

On the basis of large-scale machine industry a spontaneous process of

extensive socialisation of labour by capital is accomplished.
First, as a result of the use of machines industrial production is more and
more concentrated in large-scale enterprises. The machine itself requires the
joint labour of many workers.
Second, a further development takes place under capitalism in the social
division of labour. The number of branches of industry and agriculture is
increased. At the same time the separate branches and enterprises become
even more dependent one upon another. With this extensive specialisation of
branches a factory-owner producing, for example, cloth, becomes directly
dependent on a factory-owner producing yarn, the latter upon a capitalist who
produces cotton, an owner of an engineering works, of collieries, etc.
Third, the disunity of petty economic units characteristic of natural economy
disappears, and the petty local markets become fused in a vast national and
world market.
Fourth, capitalism with its machine technique does away with the various
forms of personal dependence affecting the worker. The basis of production
becomes free hired labour. Greater mobility of the population is brought about,
which guarantees an unfailing supply of labour-power to the growing branches
of industry.
Fifth, with the spread of machine production a great number of industrial
centres and large towns arise. Society is more and more split into two basic
antagonistic classes-the class of capitalists and the class of wage-workers.
The socialisation of labour and production, for which machine technique
served as the foundation, was a notable step forward in the progressive
development of society. But the selfish interests of the capitalists, avid for
profits, set a definite limit to the development of the productive forces.
From the social standpoint it is advantageous to use a machine if the labour
which it costs to produce the machine is less than the labour which will be
saved by using it, and also if the machine lightens labour. But for the capitalist
neither economising social labour nor lightening the workers labour means
anything; all he cares about is economising on wages. The limit to the use of
machines is therefore for the capitalist a narrower one. It is set by the
difference between the price of the machine and the wages of the workers
displaced by it. The lower the wages of the workers the weaker the incentive to
the capitalist to introduce machinery. Therefore hand labour is still widely used
to this day in the industry of capitalist countries.
Large-scale machine industry sharpened the competitive struggle between
the capitalists and intensified the spontaneity and anarchy of all social
production. Capitalist use of machines brought about not only a rapid
development of the productive forces of society but also an unprecedented
growth in the oppression of labour by capital and sharpening of all the
contradictions of the capitalist mode of production.

BRIEF CONCLUSIONS
(1) The transition from manufacture to large-scale machine industry meant
an industrial revolution. Of very great importance for the transition to machine
industry were: the invention of the steam engine, improvement in the method
of smelting metal, and the making of machines to produce machines. The
machine conquered one province of the production of commodities after
another.
(2) With the growth of capitalism there took place the process of capitalist
industrialisation of the most important countries of Europe and America.
Capitalist industrialisation begins as a rule with the development of light
industry. In the industrialisation of capitalist countries a big role is played by
the plundering of colonies and conquered countries and also the obtaining of
loans on extortionate terms. Capitalist industrialisation is based on the
exploitation of wage-labour and intensifies the ruining of the broad masses of
peasants and craftsmen. It leads to a further growth in the social division of
labour, completes the separation of industry from agriculture, and makes more
acute the antithesis between town and country.
(3) The capitalist factory is a large-scale enterprise, based upon exploitation
of wage-workers and employment of a system of machines for producing
commodities. Management in the capitalist factory is despotic in character. In
capitalist society the use of machines is accompanied by increasingly burden-
some labour of the wage-worker, his intensified exploitation and the drawing
into production of women and children, who are paid extremely low wages.
Capitalist machine production completes the process of separating mental
labour from physical and sharpens the antithesis between them.
(4) The development of large-scale machine industry leads to the growth of
cities, to an increase in the urban population at the expense of the rural, to the
formation of a class of wage-workers (the proletariat), and to growth in the
numbers of the latter. The introduction of machinery into agriculture is an
advantage for large-scale production. It leads to raising the productivity of
labour and hastens, the process of disintegration of the peasantry. Under
capitalism agriculture lags further and further behind industry, and this
deepens the antithesis between town and country.
(5) Large-scale machine industry plays a progressive role in history, leads
to the growth of the productivity of labour and to the socialisation of labour by
capital. The limits to the use of machinery by the capitalists are set by the fact
that capitalists introduce machinery only where its price is less than the wages
of the workers displaced by it.

CHAPTER VII

CAPITAL AND SURPLUS-VALUE.

THE BASIC ECONOMIC LAW OF
CAPITALISM
The Basis of Production Relations in the Capitalist System

With the transition from manufacture to large-scale machine industry the

capitalist mode of production became predominant. In industry, in place of
craft workshops and manufactories based on hand labour, factories and works
appeared in which labour was equipped with complicated machinery. Large-
scale capitalist farms began to arise in agriculture, using comparatively
developed agronomical technique and agricultural machinery. New techniques
developed, new productive forms came into being, and new capitalist
production-relations became predominant. An investigation of the production-
relations of capitalist society in their rise, development and decline makes up
the principal content of Marxs Capital.
The basis of the production-relations of bourgeois society is capitalist
property in the means of production. Capitalist property in the means of
production means the private property of the capitalists, not derived from their
own labour, and used for exploitation of wage-workers. In Marxs classic
definition,

the capitalist mode of production rests on the fact that the material
conditions of production are in the hands of non-workers in the form of
property in capital and land, while the masses are only owners of the
personal conditions of production, of labour-power. (Marx, Critique of the
Gotha Programme, Marx and Engels, Selected Works, 1950, English
edition, vol. II, p. 23.)
 Capitalist production is based on wage-labour. Wageworkers are free from
the ties of serfdom. But they are deprived of the means of production and
compelled under threat of starvation to sell their labour-power to the
capitalists. The exploitation of the proletariat by the bourgeoisie is the main
feature of capitalism, and the relationship between the bourgeoisie and the
proletariat is the fundamental class relationship of the capitalist system.
In countries where the capitalist mode of production prevails, alongside
capitalist forms of economy more or less substantial survivals of pre-capitalist
forms of economy have been preserved. Pure capitalism does not exist
anywhere. Besides capitalist property there also exist in bourgeois countries
the large-scale landed property of the landlords, together with the petty
private property of simple commodity producers, peasants and craftsmen, who
live by their own labour. Petty production plays a subordinate role under
capitalism. The mass of petty commodity producers of town and country are
exploited by the capitalists and landlords who own the factories and works, the
banks, commercial institutions and the land.
The capitalist mode of production passes through two stages in its
development: pre-monopoly and monopoly. The general economic laws of
capitalism operate in both stages of its development. At the same time,
monopoly capitalism is distinguished by a whole series of important special
features, of which more later.
Let us now pass to examining the essential nature of capitalist exploitation.

Transformation of Money into Capital

Each unit of capital begins its career in the form of a certain sum of money.
Money does not in itself constitute capital. When, for instance, independent
petty commodity producers exchange their commodities, money plays its part
as a circulation medium but does not serve as capital. The formula of
commodity circulation is: C (commodity)-M (money)-C (commodity), i.e., the
selling of one commodity in order to buy another. Money becomes capital when
it is used to exploit the labour of others. The general formula of capital is M-C-
M, i.e., buying in order to sell so as to make money.
The formula C-M-C means that one use-value is exchanged for another: a
commodity producer hands over a commodity which he does not need and
receives in exchange another commodity which he needs for use. The purpose
of the circulation process is a use-value. In the formula M-C-M, on the
contrary, the starting and finishing points of the movement coincide: at the
beginning of the process the capitalist had money and at the end of it he has
money. The movement of capital would be pointless if at the end of the process
the capitalist had the same amount of money as at the beginning. The whole
sense of the capitalists activity is that as the result of the operation he has
more money than he had at the beginning. The purpose of the circulation
process is an increase in value. Therefore the general formula of capital in its
full form is: M-C-M, with M standing for an increased amount of money.
Capital advanced by a capitalist, i.e., put into circulation by him, returns to
its owner with a certain increment.
What is the source of this growth of capital? Bourgeois economists, in their
endeavour to hide the true source of money-making by the capitalists, often
assert that this increment comes about in the process of commodity
circulation. This assertion is unsound. Consider the facts. If commodities and
money of equal value, i.e., equivalents, are exchanged, none of the commodity
owners can derive from circulation any value greater than that which is
embodied in his own commodity. If sellers succeed in selling their commodities
above their value, by 10 per cent, say, when they become buyers they have to
pay back this 10 per cent to the sellers. Thus, what the commodity owners
gain as sellers they lose as buyers. Yet in actual fact increments to capital are
secured by the whole class of capitalists. Evidently, the owner of money, in
order to become a capitalist, must find on the market a commodity which when
consumed creates its own value and something over besides, more than it
possesses itself. In other words, the owner of money must find on the market
a commodity the use-value of which possesses the property of being a source
of value. This commodity is labour-power.

Labour-power as a Commodity. Value and Use-value of the

Commodity Labour-power

Labour-power, as the aggregate of physical and mental qualities of which a

person disposes and which he puts into action whenever he produces material
wealth, is a necessary element of production in any form of society. Only under
capitalism, however, does labour-power become a commodity.
Capitalism is commodity production at the highest stage of its development,
when labour-power too becomes a commodity. With the transformation of
labour-power into a commodity, commodity production takes on a universal
character. Capitalist production is based on wage-labour, and the hiring of a
worker by a capitalist is nothing else than the buying and selling of the
commodity labour-power: the worker sells his labour-power and the capitalist
buys it.
When he has hired a worker, a capitalist has the workers labour-power at
his free disposal. The capitalist uses this labour-power in the process of
production; and that is where the increment to capital takes place.
Like every other commodity, labour-power is sold at a definite price, which
is based upon its value. What is this value?
For the worker to retain his ability to work he must satisfy his need for
food, clothing, footwear and housing. Satisfaction of these necessary vital
requirements means restoring the vital energy-of muscles, nerves and brains-
which the worker has expended and putting him once more in a fit state to
work. Furthermore, capital needs a constant flow of labour-power; for this
reason the worker must be able to maintain not only himself but also his
family. In this way the reproduction, i.e., the continuous renewal, of labour-
power is ensured. Finally, capital needs not only unskilled but also skilled
workers, able to handle complex machinery, while the acquisition of skill
involves a certain outlay of labour on training. For this reason the expenses of
producing and reproducing labour-power also include a definite minimum of
expenditure on the training of the rising generations of the working class.
It follows from the above that the value of labour-power as a commodity is
equal to the value of the means of existence which are necessary for the
maintenance of the worker and his family. The value of labour-power is
determined as in the case of every other commodity, by the labour-time
necessary for the production, and consequently, also the reproduction of this
special article. (Marx, Capital, Kerr edition, vol. 1, p. 189)
In the course of the historical development of society both the level of
workers customary requirements and also the means needed to satisfy these
requirements have undergone changes. The level of a workers customary
requirements varies from country to country. The special features of the
historical path followed by a given country and the conditions in which the class
of wage-workers was formed have much to do with determining the nature of
these requirements. Climatic and other natural conditions also have a certain
bearing on the workers requirements in respect of food, clothing and shelter.
The value of labour-power includes not only the value of the consumer goods
needed to restore the physical strength of the worker but also the cost of
satisfying certain cultural requirements of himself and his family, engendered
by the very conditions of society in which the workers live and are brought up
(education of children, purchase of newspapers and books, visits to the cinema
and the theatre, etc.). The capitalists try, all the time and everywhere, to
reduce the material and cultural conditions of the working class to the lowest
possible level.
When he begins in business, a capitalist buys everything that he needs for
production: buildings, machinery, equipment, raw materials, fuel. Then he
engages workers, and the production-process commences in the enterprise
which he owns. When the commodity is ready, the capitalist sells it. The value
of the finished commodity comprises: first, the value of the means of
production expended (the raw material worked up, the fuel used, a certain part
of the value of the buildings, machinery and tools); second, the new value
created by the workers in the enterprise itself.
What does this new value consist of?
The capitalist mode of production presupposes a comparatively high level of
productivity of labour, under which the worker needs only part of the working
day to create value equal to the value of his labour-power. Let us suppose that
one hour of simple average labour creates value equivalent to one dollar and
the daily value of labour-power is equivalent to six dollars. In this case the
worker, so as to pay for the daily value of his labour-power, would have to work
six hours~ But the capitalist has bought his labour-power for the whole day,
and he compels the worker to work not six hours but for an entire working day,
lasting, say, twelve hours. During these twelve hours the worker creates value
equivalent to twelve dollars, even though the value of his labour-power is
equivalent only to six dollars.
We now see what the specific use-value of the commodity labour-power
consists of for the person who buys it-the capitalist. The use-value of the
commodity labour-power is its capacity to be the source of value, and withal,
of more than it possesses itself.

The Production of Surplus- Value-Basic Economic Law of

Capitalism
 The value of labour-power and the value which is created in the process of
using it are, in fact, two quite distinct magnitudes. The difference which exists
between these magnitudes. is the necessary prerequisite for capitalist
exploitation.
In our example, the capitalist, who has spent 6 dollars on hiring workers,
obtains value created by their labour which is equivalent to 12 dollars. The
capitalist recovers the capital which he originally advanced plus an increment
or surplus equivalent to 6 dollars. It is this increment that constitutes surplus-
value.
Surplus-value is the value created by the labour of a wage-worker over and
above the value of his labour-power and appropriated by the capitalist without
payment. Thus, surplus labour is the result of the workers unpaid labour.
The working day in a capitalist enterprise is divided into two parts:
necessary labour-time and surplus labour-time, and the labour of the wage-
worker into necessary and surplus labour. During the necessary labour-time
the worker reproduces the value of his labour-power, and during the surplus
labour- time he creates. surplus-value.
A workers labour, under capitalism, is a process of use by the capitalist of
the commodity labour-power, or a process of extraction of surplus-value from
the worker by the capitalist. The labour-process is characterised, under
capitalism, by two fundamental peculiarities. First, the worker works under the
control of the capitalist to whom the workers labour belongs. Second, not only
does the workers labour belong to the capitalist but also the product of this
labour. These peculiarities of the labour-process transform the wage-workers
labour into a heavy and hateful burden.
The immediate aim of capitalist production is the production of surplus-
value. In accordance with this, productive labour means under capitalism only
such labour as creates surplus-value. If the worker does not create surplus-
value, his work is unproductive work, useless for capital.
In contrast to the previous forms of exploitation-slave-owning and feudal-
capitalist exploitation is masked. When the wage-worker sells his labour-power
to the capitalist, this transaction appears at first sight to be an ordinary
transaction between commodity owners, the usual exchange of a commodity
against money, carried out in accord with the law of value. The transaction of
buying and selling labour-power, however, is merely the outward form behind
which is hidden the exploitation of the worker by the capitalist, the
appropriation by the capitalist, without any equivalent, of the workers unpaid
labour.
In order to clarify the essential nature of capitalist exploitation we will
suppose that the capitalist, when he engages the worker, pays him the full
value of his labour-power, determined by the law of value. It will be shown
later when we examine wages that, unlike the prices of other commodities, the
price of labour-power, as a rule, diverges below its value. This circumstance
still further increases the exploitation of the working class by the capitalist
class.
Capitalism enables the wage-worker to work, and consequently to live, only
in so far as for a certain amount of his time he works gratis for the capitalist. If
he leaves one capitalist enterprise, the most favourable thing that can happen
to the worker will be to find himself in another capitalist enterprise, where he
will be subjected to the same exploitation. When he exposed the system of
wage-labour as a system of wage-slavery, Marx pointed out that whereas the
Roman slave was bound by chains, the wage-worker was bound by invisible
threads to his owner. This owner is the capitalist class as a whole.
Surplus-value, created by the unpaid labour of wage-workers, constitutes
the common source of the unearned incomes of the various groups of the
bourgeois class: industrialists, traders and bankers-and also the class of
landowners.
Production of surplus-value is the basic economic law of capitalism.
Analysing capitalism, Marx wrote: Production of surplus-value is, the absolute
law of this mode of production. (Marx, Capital, Kerr edition, vol. 1, p. 678.)
The essential features of this law consist in the production of surplus-value
on an ever-increasing scale and the appropriation of it by the capitalists on the
basis of bourgeois ownership of the means of production by means of
increasing exploitation of wage-labour and the extension of production.

Capital did not invent surplus labour. Wherever society consists of exploiters
and exploited, the ruling class pumps surplus labour out of the exploited
classes. But unlike the slave-owner and the feudalist, who in conditions where
natural economy prevailed used the greater part of the product of the surplus
labour of the slaves and serf-peasants for the direct satisfaction of their needs
and whims, the capitalist transforms the whole of what his wage-workers
produce into money. Part of this money the capitalist spends on buying
consumer goods and luxury articles, the rest he invests again, as additional
capital, to bring him in further surplus-value. This is why capital displays, in
Marxs words, truly wolf-like greed for surplus labour.
The pursuit of surplus-value is the principal driving-force of the
development of the productive forces under capitalism. None of the previous
forms of society based on exploitation, neither slavery nor feudalism,
possessed such a force, hastening forward the growth of technique.
Lenin called the doctrine of surplus-value the corner-stone of Marxs
economic theory. By disclosing in his doctrine of , surplus-value the essence of
capitalist exploitation, Marx dealt a mortal blow to bourgeois political economy
and its talk about the harmony of interests under capitalism, and gave the
working class a spiritual weapon for overthrowing capitalism.

Capital as a Social Relation of Production. Constant and

Variable Capital

Bourgeois economists call capital every instrument of labour and every

means of production, beginning with the stones and sticks of primitive man.
This definition of capital has the aim of concealing the essence of capitalist
exploitation of the worker and of showing capital as some sort of eternal and
unchanging condition for the existence of any human society.
In fact, the stones and sticks of primitive man served him as instruments of
labour but were not capital. Neither are the tools and raw material of the
handicraftsman capital, nor the Implements, seed and draught animals of the
peasant who works his holding with his own labour. Means of production
become capital only at a certain level of historical development, when they are
the private property of a capitalist and serve as means of exploiting wage-
labour. With the liquidation of the capitalist system the means of production
pass into social ownership and cease to be capital. Thus, capital is not a thing
but a social relationship of production which is historically transient in
character.
Capital is value which, through the exploitation of wage-labour, brings in
surplus-value. In Marxs words, capital is dead labour, that vampire-like, only
lives by sucking living labour, and lives the more, the more labour it sucks.
(Marx, Capital, Kerr edition, vol. 1, p. 257.) Embodied in capital is the
production-relationship between the class of capitalists and the working class,
consisting in the fact that the capitalists as owners of the means and conditions
of production exploit wageworkers who create surplus-value for them. This
production-relationship, like all the other production-relations of capitalist
society, takes the form of a relationship between things, and appears as if it
were a property of things themselves-the means of production-to bring in an
income for the capitalist.

This is what constitutes the fetishism of capital. Under the capitalist mode of production a
deceptive appearance is created, as though the means of production (or a particular sum of
money for which means of production can be bought), possess by themselves the miraculous
property of providing their owner with a regular unearned income.

Different parts of capital play different roles in the process of producing

surplus-value.
The entrepreneur spends a certain part of his capital on erecting a factory
building, on purchasing equipment and machinery, on buying raw materials,
fuel and auxiliary supplies. The value of this part of capital is transferred into
the newly-produced commodity in proportion as the means of production are
used up or worn out in the labour process. The part of capital which exists in
the form of value of the means of production does not change its magnitude
during the process of production, and is therefore called constant capital.
Another part of his capital is spent by the entrepreneur on the purchase of
labour-power-on hiring workers. In return for this part of the capital which he
lays out the entrepreneur receives at the end of the production process a new
value which has been produced by the workers in his enterprise. This new
value, as we have seen) is greater than the value of the labour-power bought
by the capitalist. Thus that part of the capital which is spent on the hiring
workers changes its magnitude in the production process: it grows as a result
of the creation by the workers of surplus-value which is appropriated by the
capitalist. The part of capital which is spent on the purchase of labour-power
(i.e., on hiring workers) and grows in the process of production, is called
variable capital.
Marx used the Latin letter c to signify constant capital and v to signify
variable capital. It was Marx who first divided capital into its constant and
variable parts. Through this division the special role played by variable capital
employed in the purchase of labour-power was revealed. The exploitation of
wage-workers by capitalists is the real source of surplus-value.
 The discovery of the two-fold character of the labour embodied in a commodity provided
Marx with the key for establishing the difference between constant and variable capital and
exposing the essential nature of capitalist exploitation. Marx showed that the worker by his
labour simultaneously creates new value and transfers the value of the means of production
into the manufactured commodity. As a definite kind of concrete labour, the workers labour
transfers the value of the used-up means of production into his product; while as abstract
labour, as expenditure of labour-power in general, the same workers labour creates new value.
These two aspects of the labour-process are distinguished quite tangibly. For example, when
the productivity of labour in a particular branch of industry is doubled, a spinner transfers to
his product during the course of a working day twice as much of the value of the means of
production (because he works up a quantity of cotton twice as large), but he creates only the
same amount of new value as before.

The Rate of Surplus-Value

The degree of exploitation of the worker by the capitalist is expressed in the

rate of surplus-value.
The rate of surplus-value is the term used for the relation between the
surplus-value and the variable capital, expressed as a percentage. The rate of
surplus-value shows the proportions in which the labour expended by the
worker is divided into necessary and surplus labour, or in other words, what
part of the proletarians working day is spent in replacing the value of his
labour-power and what part of it he spends working gratis for the capitalist.
Marx used the Latin letter s to stand for surplus-value and s/v to stand for
the rate of surplus-value. In the case quoted above the rate of surplus-value,
expressed as a percentage, would be: s/v=6 dollars/6 dollars x100=100 per
cent.
The rate of surplus-value is in this case 100 per cent. What this means is
that in the given case the workers labour is divided equally into necessary and
surplus labour. As capitalism develops, the rate of surplus-value grows,
expressing the increase in the degree of exploitation of the. proletariat by the
bourgeoisie. Still more rapidly grows the mass of surplus-value, as the number
of wage-workers. exploited by capital increases.

In his article Workers Earnings and Capitalists Profits in Russia, written in 1912, Lenin
set out the following calculations, showing the degree to which the proletariat was exploited in
pre-revolutionary Russia. According to the findings of an official investigation of factories and
works carried out in 1908 and tending, undoubtedly, to overestimate the figures for the size of
workers earnings and underestimate those for the size of capitalists profits, the workers
wages amounted to 555.7 million roubles, while the capitalists profit totalled 568.7 million
roubles. The total number of workers employed in the enterprises of large-scale factory
industry which were investigated was 2,254,000. Thus, a workers average wage was 246
roubles it year, while each worker provided the capitalists, on an average, with 252 roubles of
profit annually.
Thus, in Tsarist Russia the worker spent less than half of his day working for himself and
more than half working for the capitalist.

Two Ways of Increasing the Degree of Exploitation of

Labour by Capital. Absolute and Relative Surplus-Value
 Each capitalist tries his utmost, with the aim of increasing surplus-value, to
increase the share of surplus labour extracted from the worker. The increasing
of surplus-value is effected in two main ways.
Let us take for example a working day of 12 hours, of which 6 hours are
necessary and 6 are surplus labour. Let us show this working day as a line on
which each division is equivalent to 1 hour.

Working day= 12 hours

Necessary labour-time Surplus labour-time

= 6 hours = 6 hours

The first method of increasing the degree to which the worker is exploited is
for the capitalist to increase the surplus-value which he obtains by increasing
the length of the whole working day, say, by 2 hours. In this case the working
day can be depicted like this:

Working day=14 hours

Necessary labour-time Surplus labour-time

= 6 hours = 8 hours

The magnitude of the surplus labour-time has grown as a result of the

absolute lengthening of the working day as a whole, while the necessary
labour-time has remained the same. Surplus-value produced by lengthening
the working-day is called absolute surplus-value.
The second method of increasing the degree of exploitation of the workers
consists in arranging, while the overall length of the working day remains
unchanged, for the surplus-value received by the capitalist to increase thanks
to a reduction in the necessary labour-time. The growth of the productivity of
labour in the branches of industry which manufacture goods consumed by the
workers, and also in those supplying implements and material for the
production of these consumer goods, leads to a reduction in the labour-time
needed for their production. Consequently, the value of the workers means of
subsistence decreases; and in accordance with this the value of labour-power
declines. Where formerly 6 hours had to be expended to produce a workers
means of subsistence, now this demands, say, only 4 hours. In a case like this
the working day may be depicted in the following manner:
 Working day= 12 hours

Necessary labour-time Surplus labour-time

=4 hours =8 hours

The length of the working day has not been altered, but the amount of surplus
labour-time has grown as a result of the changed proportion between
necessary and surplus labour-time. Surplus-value which arises from a
reduction in necessary labour-time and corresponding increase in surplus
labour-time as a result of an increase in the productivity of labour is called
relative surplus-value.
Both ways of increasing surplus-value lead to intensifying the exploitation of
wage labour by capital; but they playa different part at different stages of the
historical development of capitalism. In the first stages of the development of
capitalism, when technique was at a low level and progressed relatively slowly,
the most important method was the increase in absolute surplus-value.
In its hunt for surplus-value capital effected a radical revolution in former
methods of production, the Industrial Revolution, which gave rise to large-scale
machine industry. Capitalist simple co-operation, manufacture and machine
industry, discussed above, in Chapters V and VI, were successive stages in the
increase in the productivity of labour by capital. In the machine period, when
rapidly developing technique made it possible to raise the productivity of labour
in a short time, the capitalists brought about a tremendous intensification in.
the degree of exploitation of the workers first and foremost by effecting an
increase in relative surplus labour. At the same time they continued as before
to strive for a lengthening of the working day and especially to enhance the
intensity of labour. Intensifying the workers labour means for the capitalist the
same as lengthening the working day: lengthening the working day from 10 to
11 hours or heightening the intensity of labour by one-tenth gives him the
same result in either case.

Extra Surplus- Value

An important role in the development of capitalism is played by the pursuit

of extra surplus-value. It is obtained when individual capitalists introduce
machines and production methods in their works which are more advanced
than those used in the majority of enterprises in the same branch. In this way
the individual capitalist achieves in his enterprise a higher productivity of
labour compared with the average level which prevails in the relevant branch of
production. As a result, the individual value of a commodity produced in this
capitalists enterprise is lower than the social value of this commodity. As the
price of a commodity is determined by its social value, however, the capitalist
obtains a higher rate of surplus-value compared with the usual rate.

Let us take the following example. Let us suppose that a worker in a tobacco factory
produces 1,000 cigarettes an hour and works twelve hours, during six of which he is creating
value equivalent to the value of his own labour-power. If a machine is introduced in this factory
which doubles the productivity of labour, this worker, working twelve hours as before, produces
not 12,000 but 24,000 cigarettes. Part of the newly-created value, embodied (allowing for the
value of the transferred part of the constant capital) in six thousand cigarettes i.e., the product
of three hours, reimburses the factory-owner for the workers wages. The rest; of the newly-
created value, embodied (allowing for the value of the transferred part of the constant capital)
in 18,000 cigarettes, i.e., the product of nine hours, remains with the factory-owner.
Thus, a reduction in the necessary labour-time takes place, with a corresponding
lengthening of the surplus labour-time. The worker needs not even six hours but only three
hours to replace the value of his own labour-power; his surplus labour has increased from six
hours to nine. The rate of surplus-value has trebled.

Extra surplus-value is an excess of surplus-value above the usual rate,

obtained by individual capitalists as a result of a decrease in the individual
values of commodities produced in their enterprises.
The obtaining of extra surplus-value is only a temporary phenomenon for
any particular enterprise. Sooner or later the majority of entrepreneurs in the
same branch will introduce the new machinery, and whoever does not possess
sufficient capital to do this will be ruined in the process of competition. As a
result, the time socially-necessary for the production of the given commodity
will be shortened and the value of the commodity reduced; and the capitalist
who introduced the technical improvements earlier than the rest will cease to
obtain extra surplus-value. Disappearing from one enterprise, however, extra
surplus-value appears in another, where new and still more advanced
machinery is being introduced.
Each capitalist aims only at his own enrichment. But the ultimate result of
the separate actions of the individual entrepreneurs is the growth of technique,
the development of the productive forces of capitalist society. At the same time
the pursuit of surplus-value causes each capitalist to keep his technical
achievements from his competitors, gives rise to trade secrets and
technological hush-hush, Thus it becomes evident that capitalism sets definite
limits to the development of productive forces.
The development of the productive forces under capitalism takes place in
contradictory fashion. The capitalists introduce new machinery only when it will
lead to an increase in surplus-value. The introduction of new machinery serves
as the basis for an all-round increase in the degree of exploitation of the
proletariat, lengthening of the working day and growth in the intensity of
labour; the progress of technique takes place at the cost of numberless
sacrifices and deprivations on the part of many generations of the working
class. Thus, capitalism deals in most predatory fashion with the main
productive force of society, the working class, the toiling masses.

The Working Day and its Limits. The Struggle to Shorten the
Working Day
 In their drive to raise the rate of surplus-value the capitalists try to lengthen
the working day to its maximum length. The working day means that period of
a given 24 hours during which the worker is at the enterprise and at the
disposal of the capitalist. Were it possible, the employer would compel his
workers to work 24 hours a day. A man needs, however, to spend a certain
part of each day and night recovering his strength, resting, sleeping and
eating. These needs determine the purely physical limits of the working day.
Besides these, the working day also has moral limits, for the worker needs
time to satisfy his cultural and social requirements.
Capital, in its insatiable greed for surplus labour, does not want to reckon
with even the purely physical limits to the working day, let alone the moral
ones. As Marx puts it, capital is ruthless towards the life and health of the
worker. The rapacious exploitation of labour-power shortens the proletarians
life-span and leads to an exceptional increase in the mortality rate among the
working population.
In the period of the rise of capitalism the State power promulgated special
laws in the interests of the bourgeoisie, for the purpose of compelling the
wage-workers to work the maximum possible number of hours. In those days
technique was still at a low level and the masses of peasants and craftsmen
were still able to work independently, in consequence of which capital did not
have a surplus of workers at its disposal. The situation changed with the
spread of machine production and the growth of the proletarian population.
Sufficient workers became available to capital, and they were obliged by the
threat of starvation to accept enslavement to the capitalists. The need for State
laws lengthening the working day declined. Capital became able to lengthen
the working day to its utmost extent by means of economic compulsion. Under
these conditions the working class began a stubborn struggle to shorten the
working day. This struggle developed earliest in Britain.

As a result of a long struggle the British workers secured the passing in 1833 of a factory
Act which restricted the labour of children under thirteen to eight hours and that of adolescents
between thirteen and eighteen to twelve hours. In 1844 a law was passed restricting womens
hours of work to twelve and those of children to six and a half. In the majority of cases child
labour and female labour were employed alongside that of men. For this reason a working day
of twelve hours for all workers became general in enterprises affected by the factory legislation.
By a law of 1847 the labour of adolescents and women was restricted to ten hours. A law of
1901 restricted working hours for adults to twelve in the first five days of the week and five
and a half on Saturdays.

In proportion as the resistance of the workers grew, laws restricting the

working day began to appear in other capitalist countries as well. After the
passing of each law of this kind, the workers had to wage an unremitting
struggle to ensure that it was implemented in practice.
A particularly stubborn struggle for legislative restriction of labour-time
developed after the working class put forward as its battle-slogan the demand
for an eight-hour working day. This demand was proclaimed in 1866 by the
Labour Congress in America and the Congress of the First International, at
Marxs suggestion. The struggle for the eight-hour working day became an
integral part not only of the economic but also of the political struggle of the
proletariat.
 In Tsarist Russia the first factory Acts were promulgated at the end of the
nineteenth century. After the famous strikes waged by the Petersburg
proletariat, the law of 1897 restricted the working day to 11 hours. This law
was, in Lenins words, a forced concession, won from the Tsarist government
by the Russian workers.
On the eve of the first world war a working day of 10 hours prevailed in the
majority of developed capitalist countries. In 1919, influenced by the
bourgeoisies alarm at the growth of the revolutionary movement, the
representatives of a number of capitalist countries, meeting at Washington,
concluded a convention for introducing an 8-hour day internationally. Later
however, all the big capitalist States refused to ratify this convention.
Nevertheless, in many capitalist countries the 8-hour working day was
introduced, under the pressure of the working class. But the employers made
up for the reduction in the working day by acutely increasing the intensity of
labour. In a number of capitalist countries, together with an exhausting
intensity of labour, a long working day prevails, especially in industries
producing armaments. An excessively long working day is the lot of the
proletariat in the colonial and dependent countries.

Class Structure of Capitalist Society. The Bourgeois State

Characteristic of the slave-owning and feudal modes of production was the

splitting-up of society into various classes and estates, forming a complex
hierarchical social structure. The bourgeois epoch simplified class
contradictions and replaced the diverse forms of hereditary privilege and
personal dependence by the impersonal power of money, the unrestricted
despotism of capital. Under the capitalist mode of production, society splits up
more and more into two great antagonistic camps, into two opposed classes,
the bourgeoisie and the proletariat.
The bourgeoisie is the class which possesses the means of production and
uses them to exploit wage-labour. The bourgeoisie is the ruling class in
capitalist society.
The proletariat is the class of wage-workers, deprived of means of
production and therefore obliged to sell its labour-power to the capitalists.
Machine production enables capital to subject wage-labour to itself completely.
Proletarian status becomes the lifelong lot of the class of wage-workers. By
force of its economic situation the proletariat is the most revolutionary class.
The bourgeoisie and the proletariat are the basic classes of capitalist
society. So long as the capitalist mode of production exists, these two classes
are inseparably linked together: the bourgeoisie cannot exist and become rich
without exploiting the wage-workers; the latter cannot live unless they are
hired by the capitalists. At the same time the bourgeoisie and the proletariat
are mutually antagonistic classes, whose interests are opposed and
irreconcilably hostile to each other. The development of capitalism leads to a
deepening of the gulf between the exploiting minority and the exploited
masses. Besides the bourgeoisie and the proletariat there exist also under the
capitalist system the classes of landlords and peasants. These classes have
survived from the previous, feudal system, but have to a considerable extent
changed their nature in accordance with capitalist conditions.
Landlords are, under capitalism, a class of large landowners who usually
lease land to capitalist tenants or small producers-peasants; or else conduct
large-scale capitalist production, using wage-labour, on the land belonging to
them.
The peasantry is the class of small producers who conduct their enterprises
on the basis of private ownership of the means of production and by means of
backward technique and hand labour. In bourgeois countries the peasantry
forms an important part of the population. The main mass of the peasantry are
mercilessly exploited by the landlords, kulaks, merchants and usurers, and go
down into ruin. As the process of differentiation takes effect, there are
continually becoming separated off from the peasantry, on one side a mass of
proletarians and on the other kulaks or capitalists.
The bourgeois State, which arose in succession to the feudal State as a
result of the bourgeois revolution, is a tool in the hands of the capitalists for
subjecting and oppressing the working class and the peasantry. The bourgeois
State protects capitalist private property in the means of production,
guarantees the exploitation of the working people and puts down their struggle
against the capitalist 3ystem.
Since the interests of the capitalist class are sharply opposed to those of
the overwhelming majority of the population, the bourgeoisie is obliged to
conceal in every possible way the class nature of its State. The bourgeoisie
tries to present this State in the guise of something above classes, existing for
the benefit of the whole people, as a State of pure democracy. But in fact
bourgeois freedom is freedom for capital to exploit the labour of others;
bourgeois equality is an outward show hiding the inequality which exists in
fact between the exploiter and the exploited, the satiated and the hungry,
between the owners of the means of production and the mass of proletarians
who possess only their own labour-power. The bourgeois State holds down the
masses of the people by means of its administrative apparatus, police, army,
courts, prisons, concentration camps and other means of coercion. As a
necessary supplement to these means of coercion, means of ideological
influence exist, through which the bourgeoisie maintains its domination. To this
category belong the bourgeois press, the wireless, the cinema, bourgeois
science and art, and the Church.
The bourgeois State is the executive committee of the capitalist class.
Bourgeois constitutions have for their aim to consolidate social systems which
are acceptable and profitable to the possessing classes. The basis of the
capitalist system, private ownership of the means of production, is proclaimed
sacred and inviolable by the bourgeois State.
The forms assumed by bourgeois States are extremely varied, but the
essence of them all is the same: all these States are dictatorships of the
bourgeoisie, and try by all possible methods to protect and strengthen the
system of exploitation of wage-labour by capital.
As large-scale capitalist production grows, the numbers of the proletariat
increase and it becomes more and more aware of its class interests, develops
politically and organises for struggle against the bourgeoisie.
The proletariat is that class of working people which is linked with the
advanced form of economy, large-scale production. Only the proletariat-by
virtue of the economic role it plays in large-scale production-is capable of,
being the leader of all the toiling and exploited masses. (Lenin, State and
Revolution, Selected Works, 1951, English edition, vol. II, Pt. I, p. 224) The
industrial proletariat is the most revolutionary, most advanced class of
capitalist society, called upon to unite around it the working masses of the
peasantry and all the exploited strata of the population and to lead them in
the attack upon capitalism.

BRIEF CONCLUSIONS
(1) Under the capitalist system the basis of production relations is capitalist
ownership of the means of production which is used for exploiting wage-
workers. Capitalism is commodity production at its highest level of
development, when labour-power also becomes a commodity. Being a
commodity, labour-power under capitalism has value and use-value. The value
of the commodity labour-power is determined by the value of the means of
subsistence necessary for the maintenance of the worker and his family. The
use-value of the commodity labour-power consists in property of being the
source of value and surplus-value.
(2) Surplus-value is the value created by the labour of the worker in excess
of the value of his labour-power and is appropriated by the capitalist without
compensation. The production of surplus-value is the basic economic law of
capitalism.
(3) Capital is value which brings in surplus-value by exploiting wage-
workers. Capital embodies the social relationship between the capitalist class
and the working class. The different parts of capital play different roles in the
process of producing surplus-value. Constant capital is that part of capital
which is spent on means of production; this part of capital does not create new
value and does not change its magnitude. Variable capital is that part of capital
which is spent on the purchase of labour-power; this part of capital grows as a
result of the creation by the workers of surplus-value which is appropriated by
the capitalists.
(4) The rate of surplus-value is the proportion of surplus-value to variable
capital. It expresses the degree of exploitation of the worker by the capitalist.
The capitalists raise the rate of surplus-value by two methods-by the
production of absolute surplus-value and by the production of relative surplus-
value. Absolute surplus-value is surplus-value created by means of lengthening
the working day or raising the intensity of labour. Relative surplus-value is
surplus-value created by means of shortening necessary labour-time and
correspondingly increasing surplus labour-time.
(5) The class interests of the bourgeoisie and the proletariat are
irreconcilable. The contradiction between the bourgeoisie and the proletariat is
the main class contradiction of capitalist society. The bourgeois State is the
dictatorship of the bourgeoisie which functions as an organ for the protection of
the capitalist system and for holding down the working and exploited majority
of society.
 CHAPTER VIII

WAGES
The Price of Labour-power. Essential Nature of Wages

Under the capitalist mode of production, labour-power, like every other

commodity, has value. The value of labour-power, expressed in money, is the
price of labour-power.
The price of labour-power is unlike the price of other commodities. When a
commodity producer sells cloth, say, in the market, the sum of money which he
receives is simply the price of the commodity which he has sold. When a
proletarian sells his labour-power to a capitalist and obtains a certain sum of
money in the form of wages, that sum of money appears not as the price of
the commodity labour-power but as the price of labour.
This comes about for the following reasons. First, the capitalist pays the
worker his wages after the worker has expended his labour. Second, wages are
fixed either in accordance with the amount of time worked (in hours, days,
weeks) or in accordance with the quantity of product produced. Let us take our
previous example. Let us suppose that the worker works 12 hours a day.
During 6 hours he produces the value of 6 dollars, equal to the value of his
labour-power. In the remaining 6 hours he produces the value of 6 dollars,
which is appropriated by the capitalist as surplus-value. As the employer has
hired the proletarian for a full working day, he pays him 6 dollars for the whole
12 hours of his labour. Thus a false impression is created, as though wages
were the price of labour and 6 dollars were full payment for the whole of the
I2-hour working day. In fact, the 6 dollars are/only the value of one days
labour-power, whereas the proletarians labour has created value equal to 12
dollars. If wages at the given enterprise are worked out in relation to the
product turned out, it looks as though the worker is paid for the labour
expended in every unit of the commodity he has made, i.e., as above, that the
whole of the labour expended by the worker has been fully paid for.
This deceptive appearance is not an accidental delusion. It arises from the
very conditions of capitalist production, under which exploitation is concealed,
slurred over and the relations between the employer and the wage-worker
appear in distorted form as relations between equal commodity producers.
In reality the wages of the wage-worker are not the value or price of his
labour. If we suppose that labour is itself a commodity and has value, then the
magnitude of this value must be measured by some means. Evidently, the
magnitude of the value of labour, as of any other commodity, must be
measured by the amount of labour contained in it. Such a supposition creates a
vicious circle: labour is measured by labour.
Further, if a capitalist were to pay a worker the value of his labour, i.e.,
were to pay for his labour to the full extent, there would then be no source for
the capitalists wealth, i.e., no surplus-value, or, in other words, the capitalist
mode of production could not exist.
Labour is the creator of the value of commodities, but labour is not itself a
commodity and has no value. What in everyday life is called the value of
labour is in reality the value of labour-power.
The capitalist buys on the market not labour but a special commodity-
labour-power. The use of labour-power, i.e., the expenditure of the energy of
the workers muscles, nerves and brain, is the process of labour. The value of
labour-power is always less than the value newly created by the workers
labour. Wages are the payment for only part of the working day, namely, for
necessary labour-time. But in so far as wages take the form of payment for
labour the impression is created that the whole of the working day is fully paid
for. For this reason Marx calls wages in bourgeois society the transmuted form
of the value or price of labour-power.

Wages are not what they appear to be, namely the value, or price, of
labour, but only a masked form for the value, or price, of labour-power.
(Marx, Critique of the Gotha Programme, Marx and Engels, Selected
Works, 1950, English edition, vol. II, p. 27.)

Wages are the monetary expression of the value of labour power, its price,
outwardly appearing as the price of labour.

Under slavery no buying and selling of labour-power takes place between slave-owner and
slave. The slave is the property of the slave-owner. It therefore seems as though the whole of
the slaves labour is given for nothing, that even that part of his labour which replaces what
has been spent on his upkeep is unpaid labour, labour for the slave-owner. In feudal society
the necessary labour of the peasant on his own holding and his surplus labour on the landlords
demesne are distinctly separated in time and space. Under the capitalist system even the
unpaid labour of the wage-worker appears to be paid for.

Wages conceal all traces of the division of the working day into necessary
and surplus labour-time, into paid and unpaid labour, and so cover up the
relation of capitalist exploitation.

Basic Forms of Wages

The basic forms of wages are: (1) time wages and (2) piece wages
(payment by the job).
Time wages are that form of wages under which the magnitude of a
workers wages depends on the time which he works-in hours, days, weeks or
months. In accordance with these units of time we distinguish payment by the
hour, by the day, by the week, by the month.
With one and the same magnitude of time wages, the actual earnings of a
worker can differ, depending on the length of the working day. The price of one
working hour serves as the measure of payment to the worker for the labour
expended by him in a unit of time. Although, as has been shown labour itself
has no value, nor, consequently, any price, the conventional name price of
labour is used to define the size of a workers earnings. The unit of
measurement of the price of labour is provided by the payment for the labour
of one working hour, or the price of one hours work. Thus if the average
working day lasts 12 hours, and the average per-day value of labour-power is
equivalent to 6 dollars, then the average price of a working hour (600
cents12) will be 50 cents.
Time wages enable the capitalist to intensify the exploitation of the worker
by way of lengthening the working day-to lower the price of a working hour,
while leaving the wages per day, week or month unchanged. Let us suppose
that the daily rate of payment remains as before, 6 dollars, but the working
day is increased from 12 to 13 hours. In such a case the price of 1 working
hour (600 cents13) will be reduced from 50 to 46 cents. Under pressure of
the workers demands the capitalist is sometimes obliged to raise the daily
(and, accordingly, the weekly and monthly) rate of wages, but the price of 1
working hour may nevertheless remain unchanged or even decline. Thus, if the
daily wage is raised from 6 dollars to 6 dollars 20 cents, while the working day
is increased from 12 to 14 hours, the price of a working hour is thereby
reduced (620 cents14) to 44 cents.
The growth in the intensity of labour means in practice also a fall in the
price of a working hour, since the payment remains the same for a greater
output of energy, equivalent to a lengthening of the working day. As a result of
the fall in the price of a working hour the proletariat, in order to exist, is
obliged to agree to a further lengthening of the working day. Both the
lengthening of the working day and the unbounded intensification of labour
lead to increased expenditure of labour-power and to its being undermined.
The lower the payment for each hour, the greater the amount of labour or the
longer the working day that is needed for the worker to secure even a low
wage. From another aspect, the lengthening of the working period brings in its
turn a lowering of the payment for a working hour.
The capitalist makes use in his own interests of the circumstance that, with
a lengthening of the working day or an increase in the intensity of labour, the
payment for 1 hour labour is reduced. When conditions are favourable for the
sale of commodities, he lengthens the working day, introduces overtime, i.e.,
work beyond the established duration of the working day. If market conditions
are unfavourable and the capitalist is forced temporarily to reduce the extent of
his production, he reduces the working day and introduces hourly rates of
payment. Hourly rates, when the working day or working week are incomplete,
sharply reduce earnings. If, In our example,. the working day be shortened
from 12 to 6 hours while the rate of payment for labour remains, as before, 50
cents per hour, then the daily earnings for a worker amount in all to 3 dollars,
i.e., they will be half the daily value of labour-power. Thus, the worker loses in
earnings not only when the working day is lengthened beyond the usual
duration but also when he is obliged to work short time.

The capitalist can now wring from the labourer a certain quantity of surplus
labour without allowing him the labour-time necessary for his own subsistence.
He can annihilate all regularity of employment and, according to his own
convenience, caprice and the interest of the moment make the most enormous
overwork alternate with relative or absolute cessation of work. (Marx, Capital,
Kerr edition, vol. 1, p. 597.)

With time wages the size of the workers earnings bear no direct relation to
the degree of intensity of his labour: if the intensity of labour is increased, time
wages are not raised and in fact the price of a working hour falls. So as to
intensify exploitation the capitalist employs special overlookers who see that
the workers obey capitalist labour discipline and intensify this discipline still
further.

Time wages were widespread in the early stages of the development of capitalism, when
the employer, meeting as yet little organised resistance from the workers, was in a position to
increase surplus-value by lengthening the working day. Time wages have been retained,
however, even in the highest phase of capitalism. In a number of cases they offer several
advantages to the capitalist: through speeding up the movement of the machinery the
capitalist obliges the workers to work still more intensively, without increasing their wages.

Piece wages (payment by results) is that form of wages under which the
size of the workers earnings depends on the quantity of articles or separate
parts which he produces, or the number of operations he completes, in a given
unit of time. Under time wages payment for labour expended varies with its
length, under piece wages it vanes with the amount of articles produced or
operations completed, each of which is paid for at a definite rate.
In fixing the rate, the capitalist takes into account, first, the time wages of
the worker per day and, second, the amount of articles or parts which the
worker produces in the course of a day; usually he fixes the production quota
at the highest level attained by a worker. If the average daily wage in the given
ranch of production under time wages amounts to 6 dollars, and the quantity of
articles of a particular kind produced by a worker is 60, then the piece-rate for
an article or part will be 10 cents. In fixing the piece-rate the capitalist strive
that the hourly (daily, weekly) earnings of a worker should not be higher than
under time wages. Thus, piece wages are fundamentally a modified form of
time wages.
Piece wages, even more than time wages, give rise to the deceptive
appearance that the worker is selling the capitalist not labour-power but labour,
and is receiving full payment for his labour in accordance with the amount he
produces.
Capitalist piece-wage systems lead to continually greater intensification of
labour. In addition they help the entrepreneur in the matter of supervision of
the workers. The degree of intensity of labour is here controlled by the
quantity and quality of the product which the worker must make in order to
obtain the means of subsistence which he needs. The worker is compelled to
increase his output by working more intensively. But as soon as a more or less
considerable section of the workers achieve the new, heightened level of
intensity of labour, the capitalist lowers the piece-rates. If, in our example, the
piece-rate is halved, say, the worker is obliged, in order to keep his earnings at
their former level, to work twice as hard, i.e., either to work longer hours or to
work at still greater intensity, so that in one day he can produce not 60 but 120
parts. The worker tries to keep up the amount of his wages by working more,
whether by working longer hours or by producing more in one hour.... The
result is that the more he works, the less wages he receives. (Marx, Wage
Labour and Capital, Marx and Engels, Selected Works, 1950, English edition,
vol. 1, p. 95) This is the most important peculiarity of piece wages under
capitalism. Time and piece forms of wages are often in force at the same time
in one and the same enterprise. Under capitalism both of these forms of wages
are only different ways of intensifying the exploitation of the working class.
Capitalist piece-work provides the basis for the sweating systems of wages
which are applied in capitalist countries.

Sweating Systems of Wages

The most important feature of capitalist piece-work is the unbounded

intensification of work, which drains the workers entire strength. At the same
time the wages paid do not compensate for this increased expenditure of
labour-power. Beyond the limits of a certain length and intensity of work, no
additional payment can avert direct destruction of labour-power.
As a result of the use in capitalist enterprises of exhausting methods of
organising labour, towards the end of the working day an overstrain of the
workers muscular and nervous strength usually makes itself felt, which leads
to a falling-off in the productivity of labour. In his pursuit of increased surplus-
value the capitalist resorts to various sweating systems of wages, so as to
achieve a high intensity of labour throughout the entire length of the working
day. Under capitalism it is such aims as these that are served by the so-called
scientific organisation of labour. Widespread forms of such organisation of
labour, with use of wage-systems which are extremely exhausting in their
effect on the worker, are Taylorism and Fordism, underlying both of which is
the principle of raising the intensity of labour to the maximum.

The essence of Taylorism (the system is named after its deviser, the American engineer F.
Taylor) is as follows. The strongest and most dexterous workers in the enterprise are picked
out. They are obliged to work at their maximum intensity. Their execution of each separate
operation is timed in seconds and fractions of a second. On the basis of the data obtained by
this time-study a production regime and time norms are laid down for the whole mass of the
workers. When he overfulfils the norm (the job), the worker receives a small addition to his
daily wage-a bonus; if the norm is not fulfilled the worker is paid at a lower rate. Capitalist
organisation of labour in accordance with Taylors system sucks out all the workers strength;
and transforms him into an automaton mechanically performing the same movements over and
over again.
V.I. Lenin gives an actual example (the work of loading pig-iron on to a truck), where with
the introduction of Taylors system into the execution of one operation alone a capitalist was
able to reduce the number of workers from 500 to 140, i.e., to divide it by 3.6; by monstrously
intensifying the work, the daily norm of a worker engaged in loading was raised from 16 to 59
tons, i.e., multiplied by 3.7. While a worker now carried out in one day work which previously
he had taken three to four days to carry out, his daily wages normally increased (and then only
for a time) by only 63 per cent in all. In other words, with the introduction of this system of
payment the daily earnings of a worker were divided, in fact, if one compares them with the
labour expended, by 2.3. As a result, wrote Lenin, In those same 9-10 hours of work three
times as much labour is extorted from the worker, all his strength is ruthlessly exhausted,
every drop of the wage-slaves nervous and muscular energy is sucked out of him at treble
speed. Does he die sooner than he would have done? There are many others at the gate! ...
(Lenin, A Scientific System of Squeezing Out Sweat, Works, Russian edition, vol. XVIII, p,
556.)
Lenin called such ways of organising the workers labour and wages a scientific system of
squeezing out sweat.
The system of organising labour and wages introduced by the American automobile king
H. Ford and other capitalists (the,
system of Fordism) has the same aim, that of extracting the largest possible amount of
surplus-value by maximising the intensity of labour. This it achieves by continually greater
speeding-up of the conveyor belts and introduction of sweating systems of wage-payment. The
simplicity of the work operations performed by a worker at one of Fords conveyor belts makes
it possible to use the labour of unskilled workers on a wide scale and to fix a low rate of wages
for them. The tremendous intensification of labour is not accompanied by any increase in
wages or reduction of working hours. The result is that the worker quickly becomes worn out
and transformed into a sick man; he is dismissed from the works ,as unfit and falls into the
ranks of the unemployed.
Intensified exploitation of the workers is attained also by other systems of organising
labour and wages which are variants of Taylorism and Fordism. Among these is the Gantt
system (U.S.A.). Unlike Taylors piece-work system, the Gantt system is one of time-bonuses.
The worker is assigned a certain job and a very low guaranteed payment is fixed for a unit of
working time, regardless of fulfilment of the norm. If he fulfils the norm the worker is paid a
small addition to his guaranteed minimum-a bonus. The Halsey system (U.S.A.) is based on
the principle of bonus payments for time saved supplementing an average wage per hours
work. Under this system, for example, when the intensity of labour is doubled, for every hour
of saved time a bonus is paid, amounting to about a third of the hourly rate. By this
method, the more intensive the workers labour the greater the degree to which his wages fall
in relation to the labour it he expends. The Rowan system (Britain) is based on the same
principles.
A method of increasing surplus-value which is grounded in deception of the workers is so-
called profit-sharing. On the pretext of giving the workers an interest in raising the
profitability of the enterprise, the capitalist lowers the workers wages and at their expense sets
up a fund for distribution of profits among the workers. Later on, towards the end of the year,
the worker is paid, under the name of profit, what is in fact part of the wages which had
previously been kept back from him. In the end the worker who is sharing the profits receives
in fact less than the usual wages. For the same purpose shares in an enterprise are distributed
among the workers.

The capitalists tricks in all kinds of wage systems are aimed at extracting
as much surplus-value as possible from the workers. The employers use such
methods in order to befuddle the workers minds with an imaginary interest in
intensifying labour, reducing expenditure on wages per unit of production and
raising the profits of the concern. In this way the capitalist strives to weaken
the proletariats resistance to the offensive of capital, to induce the workers to
refuse to join trade unions or take part in strikes and to bring about a split in
the labour movement.
Behind all the various forms of capitalist piece-work the essence remains
the same: as the intensity and productivity of labour is raised the workers
earnings in fact fall while the capitalists income increases.

Nominal and Real Wages

In the early stage of capitalisms development payment of wages to the

workers in kind was widespread: the worker received shelter, some meagre
food and a little money.

Wages in kind survive to some extent even into the machine period of capitalism. They
existed, for instance in the extractive and textile industries of pre-revolutionary Russia. Wages
in kind are widespread in capitalist agriculture where the labour of poor peasants is used, in
certain branches of industry in the capitalist countries, and in the colonial and dependent
countries. The forms in which the worker is paid in kind vary. The capitalists place the workers
in a position where they are forced to take food on credit from the factory shop, to lease a
dwelling near the mine or on the plantation on oppressive terms fixed by their employer, etc.
Under methods of wage-payment in kind the capitalist exploits the wageworker not only as a
seller of labour-power but also as a consumer.

Money wages are characteristic of the capitalist mode of production in its

developed form.
Nominal wages must be distinguished from real wages.
Nominal wages are wages expressed in money; the sum of money which
the worker receives from the sale of his labour-power to the capitalist.
Nominal wages do not in themselves give any idea of the actual level of
payment received by the worker. For example, nominal wages may remain
unchanged, but if at the same time taxes and the prices of consumer goods
rise, the workers actual wages fall. Nominal wages may even increase but if
the cost of living rises to a greater extent in the same period of time, then in
fact wages have fallen.
Real wages are wages expressed in terms of the workers means of
subsistence; they show how many and what kinds of consumer goods and
services a worker can buy with his money wages. To determine a workers real
wage, one must start the size of his nominal wages, the level of prices of
goods, the level of rents, the burden of taxes borne by the workers, the
circumstances that some days he may receive no wages owing to short-time
working, and the number of unemployed and semi-unemployed who are
supported by the working class. One must also take into account the length
the working day and the degree of intensity of labour.
In determining the average level of wages bourgeois statistics distort
reality: they include in wages the incomes of the upper administrative groups
of the industrial and financial bureaucracy (managers of enterprises, bank
directors, etc.); include only the wages of skilled workers in the category of
wages while excluding from it the numerous stratum of poorly-paid, unskilled
workers and the agricultural proletariat; ignore the huge army of unemployed
and semi-unemployed, the rise in the prices of mass consumer goods and in
taxation; and resort to other methods of falsification so as to embellish the
situation of the working class under capitalism.
Even falsified bourgeois statistics cannot, however, hide the fact that wages
under capitalism, owing to their low level, the raising of the cost of living and
the growth of unemployment fail to guarantee a living wage to the majority of
the workers.

In 1938 some bourgeois economists in the U.S.A. worked out, using extremely modest
standards, a living wage for a workers family consisting of four persons: 2,177 dollars a year.
Yet in 1938 the average wage per head of an industrial worker in the U.S.A. amounted to 1,176
dollars, i.e., considerably less than half of his living wage; if the unemployed were brought into
the calculation, the figure came to 740 dollars, i.e., only a third of this subsistence minimum.
In 1937 a quite humble living wage for an average workers family in Britain was defined by
some bourgeois economists at 55s. a week. Official figures showed that 80 per cent of the
workers in the coal industry, 75 per cent of the workers in the extractive industries other than
coal mining, and 57 per cent of municipal workers in Britain were being paid less than this
subsistence minimum.

Decline of Real Wages under Capitalism

On the basis of his analysis of the capitalist mode of production, Marx

established the following fundamental law relating to wages. The general
tendency of capitalist production is not to raise but to sink the average
standard of wages. (Marx, Wages, Price and Profit, Marx and Engels,
Selected Works, 1950, English edition, vol. I, p. 405.)
Wages as the price of labour-power, like the price of any other commodity,
are determined by the law of value. The prices of commodities vary in capitalist
economy both above and below their value, under the influence of supply and
demand. But unlike the prices of other commodities the price of labour-power,
as a rule, tends to fall below its value.
This tendency of wages to fall below the value of labour-power is due above
all to the existence of unemployment. The capitalist tries to buy labour-power
as cheap as he can. When there is unemployment the supply of labour-power
exceeds the demand for it. The commodity labour-power differs from others in
that the proletarian cannot put off selling it. So as not to die of hunger, he is
compelled to sell his labour-power on whatever terms the capitalist offers him.
In periods of complete, or partial unemployment the worker is either entirely
without wages or else their level falls sharply. When there is unemployment
this intensifies competition among the workers. Taking advantage of this, the
capitalist pays the worker wages which are less then the value of his labour-
power. In this way the wretched situation of the unemployed; who form part of
the working class, has an effect on the material position of the workers in
employment, reducing the level of their wages.
Furthermore, the use of machinery provides the capitalist with extensive
opportunities of substituting female and child labour for mens. The value of
labour-power is determined by the value of the means of subsistence which are
needed by a worker and his family. When, therefore, the workers wife and
children are drawn into production, the workers wages fall and the entire
family now receives approximately the same amount as previously was
received by the head of the family only. This by itself means that the working
class as a whole is being exploited still more intensely. In capitalist countries
women workers doing the same work as men are paid considerably less wages.
Capital extorts surplus-value by unrestrainedly exploiting child labour. The
wages of children and youths are much lower than those of adult workers in all
capitalist and colonial countries.

The average wage of a woman worker is lower than the average wage of a male worker by
41 per cent in the U.S.A. (1949),46 per cent in Great Britain (1951), and 42 per cent in
Western Germany (1951). The difference is even more marked in colonial and dependent
countries.
In the U.S.A. in 1949, according to conservative figures, more than 3,300,000 of the wage-
workers were children and youths. The working day for children and youths is very long; thus,
in starch works and in canning and meat factories, laundries and dry-cleaning workshops,
children work 12-13 hours a day.
In Japan the practice of selling children for work in the factories is widespread. Child labour
was employed extensively in Tsarist Russia. A considerable section of the workers in textile and
several other kinds of enterprise in Russia was made up of children aged eight to ten.
The exploitation of child labour by capital assumes particularly cruel forms in colonial and
dependent countries. In the textile and tobacco factories of Turkey children of seven to fourteen
work a full working day, the same as adults.

The low wages of women workers and the exploitation of child labour brings
in its train a tremendous growth of sickness and child mortality and has a
baneful effect on the upbringing and education of the rising generation.
The decline in the workers real wages is caused also by the fact that, as
capitalism develops, the position of a substantial section of the skilled workers
deteriorates. As already mentioned, the expenses of a workers training enter
into the value of his labour-power. A skilled worker creates more value,
including surplus-value, in a given unit of time, than an unskilled worker. The
capitalist is obliged to pay for skilled labour more than he pays for unskilled.
But as capitalism develops, with the growth of industrial technique, while on
the one hand there arises a demand for highly-skilled workers, able to control
and operate complicated mechanisms, on the other hand many work-
operations are simplified and the labour of a considerable section of the skilled
workers becomes redundant. Considerable sections of the skilled workers lose
their skill, are pushed out of employment and are forced to take up unskilled
work which is paid a great deal less.
The rise in the cost of living and the fall in the level of real wages connected
with this are caused also by the rise in prices of mass consumer goods. Thus,
in France, on account of inflation, retail prices of foodstuffs stood in 1938 at a
level more than seven times as high as in 1914.
A considerable part of the workers wages is absorbed by rent. In Germany
between 1900 and 1930 the average rent grew by 69 per cent. According to
the figures of the International Labour Office, in the 1930s the workers spent
on rent heating and lighting, in the U.S.A., 25 percent of their family budgets,
in Britain 20 per cent and in Canada 27 per cent. In Tsarist Russia workers
expenditure on housing came to as much as a third of their wages.
Taxes which fall on the working people make a big deduction from their
wages. In the principal capitalist countries in the post-war period direct and
indirect taxes absorb as much as a third of the wages of a working-class family.
One widespread method of reducing wages was the system of fines. In
Tsarist Russia, until the promulgation of the law on fines (1886), which
somewhat restricted the arbitrary behaviour of the factory owners, deductions
from wages in the shape of fines amounted in certain cases to as much as half
the monthly earnings of a worker. A worker was fined on every kind of pretext:
for unsatisfactory work, for breach of regulations, for talking, for taking part
in demonstrations, etc. Fines serve not only as a means of strengthening
capitalist labour discipline but also as a source of additional income for the
capitalist.
Another factor in the decline of the workers real wages is the exceptionally
low wages received by the agricultural proletariat. The great army of surplus
labour-power in the countryside exerts a constant downward pressure on the
wage-level of the employed workers.

Thus, for example, during the period 1910-39 the average monthly wage of an agricultural
worker in the U.S.A. varied between 28 to 47 per cent of the wage of an industrial worker. The
situation of the agricultural workers in Tsarist Russia was an exceptionally hard one. For a
working day of 16-17 hours the average daily wage drawn by a seasonal agricultural worker in
Russia in 1901-10 amounted to 69 kopeks, and the miserable pay which he thus obtained
during ploughing, sowing and harvest periods had to support him during the remaining months
of the year when he was completely or partially unemployed.

So, with the development of the capitalist mode of production the real wages of the
working class suffer a reduction.

In 1924 the real wages of the German workers were 75 per cent of what they had been in
1900, and in 1935 they were 66 per cent. In the U ,S.A. the average nominal wages of the
workers (unemployed included) grew by 68 per cent between 1900 and 1938; in the same
period, however, the cost of living rose to 2.3 times its height at the beginning of the century,
so that the workers real wages fell by much as 74 per cent between these years. In France,
Italy and Japan, not to speak of the colonial and dependent countries, the decline real wages in
the nineteenth to twentieth centuries was considerably greater than in the U.S.A. In Tsarist
Russia in 1913 the real wages of industrial workers had fallen by not less than 90 percent from
the level in 1900.

The value of labour-power is not identical in all countries.

The conditions which determine the value of labour-power vary from one
country to another. This, fact gives rise to national differences in wages. Marx
wrote that, in making comparisons between wages in different countries, one
must take into account all the factors which determine variations in the
magnitude of the value of labour-power: the historical conditions under which
the working class was formed and its established level of requirements, the
cost of training a worker, the part played by the labour of women and children,
the productivity of labour, the intensity of labour, the prices of consumer goods,
etc.
An especially low level of wages is to be observed in colonial and dependent
countries. In carrying out its policy of enslaving; and systematically plundering
the colonial and dependent countries, capital takes advantage of the great
surplus of working; hands available in those countries and pays for labour-
power at very much less than its value. In this connection the workers
nationality is taken into account. Thus, for instance, whites and Negroes doing
the same work are paid at different rates. In South Africa the average wage of
a Negro worker is only one-tenth that of a white worker. In the U.S.A. Negroes
in the cities are paid two-fifths as much, and in agriculture hardly one-third as
much as whites who do the same work.
The bourgeoisie creates, at the expense of the lowered wages of the basic
mass of the workers and the plunder of the colonies, privileged conditions for a
relatively small stratum of well-paid workers. The bourgeoisie uses the so-
called aristocracy of labour formed from these well-paid strata, including a
section of trade union officials and co-operative bureaucrats, some of the
foremen, etc., for the purpose of splitting the labour movement, and poisoning
the consciousness of the basic mass of proletarians with preachings about class
peace and the unity of interests between exploiters and exploited.

The Struggle of the Working Class to Raise Wages

In each country a certain level of wages is established on the basis of the

law of the value of labour-power, as a result of a fierce class struggle between
the proletariat and the bourgeoisie.
The extent to which wages can diverge from the value of labour-power has
its limits.
The minimum limit of wages under capitalism is fixed by purely physical
conditions: the worker must have that quantity of means of subsistence which
he needs absolutely in order to live and reproduce his labour-power. If the
price of labour-power falls to this minimum it falls below its value since under
such circumstances, it can be maintained and developed only in a crippled
state. (Marx, Capital, Kerr edition, vol. 1, p. 192.) When wages fall below this
limit there occurs tin accelerated process of direct physical destruction of
labour-power and dying-off of the working population. This finds expression in
a shortening of the average expectation of life, a fall in the birth rate and an
increase in the mortality rate among the working population, both in the
developed countries and also and especially, in the colonial countries.
The maximum limit of wages under capitalism is the value of labour-power.
The degree to which the average level of wages approximates to this limit is
determined by the relation of class forces as between proletariat and
bourgeoisie.
The bourgeoisie endeavours, in its striving for greater profits, to reduce
wages below the physical minimum limit. The working class fights against cuts
in wages and for increased wages, for the establishment of a guaranteed
minimum wage, for the introduction of social insurance, and for a shorter
working day. In this struggle the working class is opposed by the capitalist
class as a whole and by the bourgeois State.
The stubborn struggle waged by the working class to raise wages had its
beginning along with the rise of industrial capitalism. It developed first in
Britain, and later spread to the other capitalist countries and to the colonies.
As the proletariat takes shape as a class the workers come together in
trade unions for the purpose of successfully conducting their economic
struggle. The result of this is that the employer finds himself opposed no longer
by individual proletarians but by an entire organisation. With the development
of the class struggle, besides local and national trade unions there came into
being international associations of trade Unions. The trade unions provide a
school of class struggle for the broad masses of the workers.
On their part, the capitalists come together in employers associations. They
bribe venal and reactionary trade union officials, organise strike-breaking, split
the workers organisations, and use the police, troops, courts and prisons to
suppress the labour movement.
One of the effective methods of struggle used by the workers under
capitalism to secure increased wages, shorter working hours and improved
conditions of work is the strike. As class contradictions become more acute and
the working-class movement becomes better organised in the capitalist and
colonial countries, many millions of workers are drawn into strike struggles.
When workers struggling against capital show determination and stubbornness,
economic strikes force the capitalists to accept the strikers terms.
It is only as a result of the unremitting struggle of the working class for its
vital interests that the bourgeois States are compelled to promulgate laws on
minimum wages, on reduction of working hours and on restriction of child
labour.
The economic struggle of the proletariat is of great importance: as a rule,
trade unions under steadfast class leadership put up a successful resistance to
the employers. The struggle of the working class is a factor which to a certain
extent restrict the fall in wages. But the economic struggle of the working class
cannot abolish the system of capitalist enslavement of the working people and
deliver the workers from exploitation and want.
While recognising the great importance of the economic struggle of the
working class against the bourgeoisie, Marxism-Leninism teaches that this
struggle is directed merely against the consequences of capitalism and not
against the root cause of the oppressed situation and poverty of the
proletariat. This root cause is the capitalist mode of production itself.
Only through revolutionary political struggle can the working class abolish
the system of wage slavery, the source of its economic and political oppression.

BRIEF CONCLUSIONS
(1) In capitalist society wages are the monetary expression of the value of
labour-power, its price, appearing to be the price of labour. Wages hide the
relationship of capitalist exploitation, creating the false impression that all the
workers labour is paid for, whereas in reality wages constitute only the price of
his labour-power.
(2) The main forms of wages are time wages and piece wages. Under the
time-wage system the size of the workers wage-packet depends on the time
he spends at work. Under the piece-wage system the size of the workers
wage-packet depends on the number of articles he produces. For the purpose
of increasing surplus-value the capitalists employ a variety of sweating systems
of wage-payment, which lead to a tremendous increase in the intensity of
labour and to an accelerated wearing-out of labour-power.
(3) Nominal wages are the amount of money received by the worker for the
labour-power which he sells to the capitalist. Real wages are wages expressed
in terms of the workers means of subsistence; they show what quantity of
means of subsistence and services the worker can buy for his money wages.
(4) As capitalism develops real wages fall. Unlike the prices of other
commodities the price of labour-power, as a rule, fluctuates below its value.
This is due above all to the existence of unemployment, to extensive use of
female and child labour and to the paying of extremely low wages to the
agricultural workers and also to the workers in the colonial and dependent
countries: An important factor in the decline in real wages is the rise in the
prices of consumer goods, high rents and the growth of taxation.
(5) The working class, united in trade unions, conducts a struggle to
shorten working hours and raise wages. The economic struggle of the
proletariat against capital cannot by itself free the proletariat from exploitation.
Only with the liquidation of the capitalist mode of production through
revolutionary political struggle can the conditions be eliminated under which
the working class is economically and politically oppressed.

CHAPTER IX

ACCUMULATION OF CAPITAL AND

IMPOVERISHMENT OF THE PROLETARIAT

Production and Reproduction

If it is to live and develop, society must produce material wealth. It cannot

stop producing, as it cannot stop consuming.
From day to day and year to year people consume bread, meat and other
foodstuffs, and wear out clothes and footwear but at the same time fresh
masses of bread, meat, cloth footwear and other products are being produced
by human labour. Coal is being burnt in stoves and furnaces but at the same
time fresh masses of coal are being drawn from the bowels of the earth.
Machine-tools gradually wear out, locomotives sooner or later become decrepit,
but fresh machine-tools are being built in the factories and fresh locomotives
are being made. Under any system of social relations the process production
must continually be renewed.
This continued renewal and ceaseless repetition of the production-process is
reproduction. When viewed, therefore, as a connected whole, and as flowing
on with incessant renewal, every social process of production is at the same
time a process of reproduction. (Marx, Capital, Kerr edition, vol. 1, p. 620.)
Whatever the conditions of production are, so also are the conditions of
reproduction. If production is capitalist in form, then reproduction takes this
form too.
The process of reproduction consists not only in people making ever fresh
masses of products in place of, and in excess of, those consumed, but also in
the fact that the corresponding production-relations in society are constantly
being renewed.
Two types of reproduction must be distinguished: simple and extended.
Simple reproduction means repetition of the production-process on the
same scale as before, the newly-produced products merely replacing the
means of production and consumer goods which have been expended.
Extended reproduction means repetition of the production-process on an
enlarged scale, when society does not merely replace the material wealth
which has been consumed but also produces additional means of production
and consumer goods over and above this.

Before the rise of capitalism the productive forces developed very slowly. The dimensions of
social production changed little from year to year and from decade to decade. Under capitalism
the former scarcely-moving, stagnant state of social production gave place to a much more
rapid development of productive forces. Typical of the capitalist mode of production is extended
reproduction which is interrupted by economic crises, when production falls off.

Capitalist Simple Reproduction

Under capitalist simple reproduction the production-process is renewed

without change of volume, the surplus-value being spent entirely on personal
consumption by the capitalists.
An examination even of simple reproduction enables one to look more
closely into some of the essential features of capitalism.
In the process of capitalist reproduction it is not only the products of labour
that are incessantly being renewed but also the relations of capitalist
exploitation. On the one hand, in the course of reproduction wealth is
constantly being created; this belongs to the capitalist and he uses it to
appropriate surplus-value. At the expiration of each production-process the
employer appears, again and again, as the owner of capital which enables him
to enrich himself by exploiting workers. On the other hand, the worker
constantly emerges from the production-process as a propertyless proletarian
and is therefore obliged, if he is not to die of hunger, again and again to sell his
labour-power to the capitalist. Reproduction of hired labour-power always
remains a necessary condition for the reproduction of capital.

Capitalist production therefore, of itself reproduces the separation

between labour-power and the means of labour. It thereby reproduces and
perpetuates the condition for exploiting the worker. It incessantly forces him
to sell his labour-power in order to live, and enables the capitalist to
purchase labour-power in order that he may enrich himself. (Marx, Capital,
Kerr edition, vol. 1, p. 623.)

Thus, the fundamental relationship of capitalism is continually renewed in

the process of production: the capitalist on the one hand and the wage-worker
on the other. Even before he sells his labour-power to one employer or another,
the worker already belongs to the combination of capitalists, i.e., to the class of
capitalists as a whole. When the proletarian changes his place of work, he only
exchanges one exploiter for another. The worker is chained for life to the
chariot of capital.
If we examine a single process of production, it seems at first sight as
though the capitalist, when he buys labour-power, is advancing money to the
worker from his own funds, since at the time when he pays the worker his
wages the capitalist may not yet have had time to sell the commodity which
the worker has produced in the period for which he is paid (a month, say). But
if we take the buying and selling of labour-power, not in isolation but as an
element of reproduction, as a continually repeated relationship, then the true
character of this transaction is revealed.
First of all, while the workers labour is creating new value, including
surplus-value, in this period the product turned out by the worker in the
preceding period is being realised on the market and transformed into money.
Hence, it is clear that the capitalist pays the worker his wages not out of his
own pocket but out of the value which the workers labour has created in the
preceding period of production (e.g., during the previous month). To use Marxs
expression, the capitalist class acts on the time-honoured principle of the
conqueror: it buys commodities from the conquered with their own money, of
which it has robbed them.
Secondly, unlike what happens with other commodities, labour-power is
paid for by the capitalist only after the worker has performed a certain amount
of labour. So it turns out that it is not the capitalist who makes an advance to
the proletarian, but, on the contrary, it is the proletarian who makes an
advance to the capitalist. For this reason employers endeavour to pay wages at
as long intervals as possible, so prolonging the time during which they are
receiving free credit from the workers.
The capitalist is continually supplying the workers, in the form of wages,
with money for purchasing the means of subsistence, i.e., with a certain part of
the product which the workers labour has created and which has been
appropriated by the exploiters. This money the workers no less regularly give
back to the capitalists, receiving in exchange for it the means of subsistence
which the working class itself has produced.
An examination of capitalist relations in the course of reproduction reveals
not only the real source of wages but also the real source of all capital.
Let us suppose that a capital of 100,000 invested by an entrepreneur
brings in annually surplus-value to the amount of 10,000, and that the whole
of this sum is spent entirely by the capitalist on his personal consumption. If
the entrepreneur did not appropriate the workers unpaid labour, his capital
would be completely exhausted after ten years had elapsed. This does not
happen because the sum of 100,000 which is spent by the capitalist on his
personal consumption during this period is completely renewed from the
surplus-value created by the unpaid labour of the workers.
Consequently, whatever might be the original source of a given capital, in
the course of simple reproduction itself this capital becomes within a certain
period value created by the workers labour and appropriated without
compensation by the capitalist. This exposes the absurdity of the assertions
made by bourgeois economists that capital is wealth created by the employers
own labour.
Simple reproduction is a constituent part or element of extended
reproduction. The relations of exploitation which are inherent in capitalist
simple reproduction become still accentuated under conditions of capitalist
extended reproduction.

Capitalist Extended Reproduction. Accumulation of Capital

Under extended reproduction a part of the surplus-value is put back by the

capitalist in order to increase the scale of production: for the purchase of
additional means of production and the hiring of additional workers. Thus, part
of the surplus-value is amalgamated with already existing capital, i.e., is
accumulated.
The accumulation of capital means the addition of part of the surplus-value
to capital, or the transformation of part of the surplus-value into capital. Thus it
is surplus-value that provides the source of accumulation. Capital grows
through the exploitation of the working class, and along with it capitalist
production-relations are reproduced on an extended basis.
Among the compelling motives for accumulation of capital is, first and
foremost, the striving to increase surplus-value. Under the capitalist mode of
production greed for gain knows no limits. As the extent of production grows,
so grows the mass of surplus-value appropriated by the capitalist, and
consequently, so also grows that part of it which goes to satisfy the personal
requirements and whims of the capitalists. On the other hand, the capitalists
are enabled, at the expense of the growing amount of surplus-value, to extend
production more and more, to exploit an ever greater number of workers and
to , appropriate an ever-increasing mass of surplus-value.
Another motive force in the accumulation of capital is the ferocious
competitive struggle, in the course of which the larger capitalists find
themselves in a better position than the others and strike down the small ones.
Competition forces every capitalist, under penalty of ruin, to improve his
technique and extend production. To stop the growth of technique and the
extension of production means to lag behind, and those who lag behind are
conquered by their competitors. Thus, the competitive struggle compels every
capitalist to increase his capital, and he can increase his capital only by
continually accumulating part of the surplus-value.
The accumulation of capital is the source of extended reproduction.

Organic Composition of Capital. Concentration and

Centralisation of Capital

In the course of capitalist accumulation the total mass of capital grows, but
the different parts into which it is divided do not change at the same rate and
consequently the composition of capital changes.
When he accumulates surplus-value and extends his enterprise, the
capitalist usually introduces new machinery and technical improvements,
because these promise him an increase in his profits. The development of
technique means a more rapid growth of that part of capital which exists in the
form of means of production-machinery, buildings, raw materials, i.e., constant
capital. On the other hand, that part of capital which is spent on the purchase
of labour-power, i.e., variable capital, grows much more slowly.
The proportion between constant and variable capital, being determined by
the proportion between the mass of means of production and of living labour-
power, is called the organic composition of capital. Let us take, for example, a
capital of 100,000. Suppose that of this sum 80,000 is spent on buildings,
machinery, raw materials, etc., and 20,000 on wages. The organic
composition of this capital is, then, 80 c : 20 v, or 4 : 1.
In different branches of industry and in different enterprises within one and
the same branch the organic composition of capital varies: it is higher where
there are more complex and costly machines and more worked up material per
worker; it is lower where living labour predominates and the amount of
machinery and material per worker is less and is comparatively inexpensive.
With the accumulation of capital the organic composition of capital grows: the
share of variable capital declines while that of constant capital increases. Thus,
in the industry of the U.S.A. the organic composition of-capital, which in 1889
was 4.4 : 1, was 5.7 : 1 in 1904, 6.1 : 1 in 1929, and 6.5 : 1 in 1939.
The size of individual capitals grows in the course of capitalist reproduction.
This occurs through the concentration and centralisation of capital.
The concentration of capital means the growth in the size of capital as a
result of the accumulation of surplus-value obtained in the given enterprise.
The capitalist becomes, through investing in his enterprise part of the surplus-
value which he has appropriated, the owner of an ever larger capital.
The centralisation of capital means the growth in the size of capital as a
result of fusing several capitals into one larger capital. In the competitive
struggle large capital ruins and devours smaller and medium capitalist
enterprises which cannot stand up to competition. By buying up the enterprises
of his ruined competitor at low prices, or annexing them to his own by some
other method (e.g., by means of loans), the large-scale factory-owner
increases the amount of capital in his possession. The union of many capitals
into one is effected also by the forming of joint-stock companies, etc.
Concentration and centralisation of capital mean the concentrating of
monstrous amounts of wealth in the hands of a few persons. The enlargement
of capitals opens wide possibilities for the concentration of production, i.e., for
the gathering together of production in large-scale enterprises.
Large-scale production has decisive advantages over small. Large-scale
enterprises can introduce machinery and technical improvements, and can
apply a broad division and specialisation of labour which is beyond the
resources of small concerns. This results in products being turned out more
cheaply in large-scale enterprises than in small-scale ones. The competitive
struggle involves great expenses and losses. A large-scale concern can bear
these losses and later recover them with interest; whereas small and even
medium ones are ruined by them. Large capitalists are able to obtain loans
with comparatively much greater ease, and on more favourable conditions; and
credit is one of the chief weapons used in the competitive struggle. Owing to all
these advantages which they possess it is large concerns, equipped with
powerful technique, that increasingly come to the forefront in the capitalist
countries, while a multitude of small and medium concerns go down in ruin. As
a result of the concentration and centralisation of capital a few capitalists, the
owners of enormous fortunes, become masters of the fate of tens and
hundreds of thousands of workers.
Capitalist concentration in agriculture leads to the land and other means of
production becoming increasingly concentrated in the hands of large property-
owners, while broad strata of small and middle peasants, deprived of land,
draught animals and implements, fall into debt-bondage to capital. Masses of
peasants and craftsmen are ruined and transformed into proletarians.
The concentration and centralisation of capital thus lead to sharpening of
class contradictions, to deepening of the gulf between the bourgeois, exploiting
minority and the propertyless, exploited majority of society. The concentration
of production also results in ever greater masses of the proletariat being
concentrated in large capitalist enterprises, in industrial centres. This facilitates
the welding together of the workers and their organisations for the struggle
against capital.

The Industrial Reserve Army

The growth of production under capitalism, as mentioned already, is

accompanied by a rise in the organic composition of capital. The demand for
labour-power is determined by the size, not of capital as a whole, but only of
its variable part. But the variable part of capital declines, compared with
constant capital, as technical progress advances. Therefore as capital
accumulates and its organic composition increases, the demand for workers
relatively contracts, although the total numbers of the proletariat grow in
proportion as capitalism develops.
As a result, a substantial mass of workers are unable to find application for
their labour. Part of the working population becomes redundant, forming the
so-called relative surplus-population. This surplus-population is relative
because part of the labour-power available is surplus only in relation to the
requirements of the accumulation of capital. Thus, in bourgeois society, as
social wealth grows, one section of the working class is doomed to ever heavier
and more excessive labour while the other section is doomed to compulsory
unemployment.

The following main forms of relative surplus-population must be distinguished:

The fluctuating surplus-population is made up of workers who lose their jobs for a certain
period as a result of a contraction of production, introduction of new machinery or the closing
down of enterprises. As production is extended, a section of these unemployed workers find
work, just as do some of the workers newly coming forward from the rising generation. The
total number of workers employed grows, but in constantly diminishing proportion compared
with the scale of production.
The latent surplus-population consists of ruined small producers, predominantly poor
peasants and landworkers, who are employed in agriculture during only a small part of the
year, cannot find application for their labour in industry and drag out a miserable existence in
the countryside living from hand to mouth somehow or other. In contrast to what happens in
industry, in agriculture the growth of technique leads to the demand for labour declining
absolutely.
The stagnant surplus-population is formed by these numerous groups of people who have
lost regular work, are employed extremely irregularly and are paid a great deal less than the-
usual rate of wages. These consist of the extensive strata of the working people employed in
capitalist domestic industry and also those living by casual day-today work.
Finally, the lowest stratum of relative surplus-population is constituted by people who have
been pushed out of productive life over a long period, without any hope of recovering their
position, and live by casual earnings. A section of these people get their living by begging.

Workers squeezed out of production constitute the industrial reserve army-

the army of unemployed. This army is a necessary appendage of capitalist
economy, without which it can neither exist nor develop. In periods of
industrial boom, when a rapid extension of production is required, there is a
sufficient number of unemployed at the disposal of the employers. As a result
of the extension of production unemployment is temporarily reduced. But later
a crisis of overproduction occurs, and once again considerable masses of
workers are thrown on to the street, to reinforce the reserve army of the
unemployed.
The existence of the industrial reserve army enables the capitalists to
intensify their exploitation of the workers. Unemployed workers have to accept
the most onerous conditions of work. The presence of unemployment creates
an unstable situation for the employed workers and sharply reduces the
standard of life of the working class as a whole. That is why the capitalists are
not interested in abolishing the industrial reserve army, which exercises
pressure on the labour market and ensures them a supply of cheap labour-
power.
As the capitalist mode of production develops, the army of unemployed,
which declines in periods of boom and grows in periods of crisis, on the whole
increases.

In Britain the percentage of unemployed among members of trade unions was: in 1853-1.7
per cent, in 1880-5.5 per cent, in 1908-7.8 per cent, in 1921-16.6 per cent. In the U.S,A.,
according to official figures, the percentage of unemployed in the working class as a whole
was: in 1890-5.1 per cent, in 1900-10 per cent, in 1915-15.5 per cent, in 1921-23.1 per cent.
In Germany the percentage of trade unionists out of work grew from 0.2 per cent in 1887 to 2
per cent in 1900 and 18 per cent in 1926. The volume of the relative surplus-population is
enormous in the countries of the colonial and semi-colonial East.

As capitalism develops, partial unemployment, under which a worker is

employed in production for only part of the day or only part of the working
week, assumes bigger and bigger proportions.
Unemployment is a real scourge to the working class. The worker can only
live by selling his labour-power. Workers dismissed from the factories face
starvation. Often the unemployed have to go without shelter because they
have not the means to pay for a nights lodging. Thus, the bourgeoisie shows
itself unable to guarantee the wage-slaves of capital a slaves standard of
living.

Bourgeois economists try to justify the existence of unemployment under capitalism by

references to eternal laws of nature. This was the aim served by the pseudo-scientific
fabrications of Malthus a reactionary British economist who flourished at the end of the
eighteenth century and the beginning of the nineteenth century. According to the law of
population invented by Malthus, the population, from the very beginning of human society has
increased in geometrical progression (as 1, 2, 4, 8, etc). but the means of subsistence, owing
to the limitations of natural resources, have grown only in arithmetical progression (as 1, 2, 3,
4, etc.) This, said Malthus, was the fundamental cause of the existence of surplus-population
and of starvation and want among the masses of the people. The proletariat, in Malthuss
opinion; can free itself from poverty and hunger not by abolishing the capitalist system but by
abstaining from marriage and artificially restricting childbearing. Malthus considered wars and
epidemics beneficial, since they cut down the working population. The theory of Malthus is
profoundly reactionary. It is a means whereby the bourgeoisie justifies the incurable taints of
capitalism. Malthuss fabrications have nothing in common with reality. The mighty technique
which mankind has at its disposal is capable of increasing the amount of means of life at rates
which cannot be overtaken by even the fastest growth of population, But this is prevented by
the capitalist system, which is the real Cause of the poverty of the masses.

Marx discovered the capitalist law of population, which is that in bourgeois

society the accumulation of capital leads to a section of the workers inevitably
becoming relatively surplus and being thrust out of employment and doomed
to suffer poverty and want. The capitalist law of population is engendered by
the production relations of bourgeois society.

Agrarian Surplus-Population

As already mentioned, one of the forms of the relative surplus-population is

the latent, or agrarian surplus-population.
The agrarian surplus-population is the excess population in the agricultural
economy of the capitalist countries, which arises as a result of the ruin of
masses of the peasantry; these people can find only partial employment in
agricultural production and cannot be absorbed into industry.
As capitalism develops, the differentiation among the peasantry is
intensified. A numerous army of agricultural workers and poor peasants is
formed. Large-scale capitalist economy creates a demand for wage-workers.
But in proportion as capitalist production lays hold of one branch of agriculture
after another and the use of machinery becomes widespread, the mass of the
peasants are more and more ruined and the demand for agricultural wage-
workers is reduced. The ruined sections of the rural population are continually
being transformed into industrial proletarians or reinforce the army of
unemployed in the cities. A considerable part of the rural population, unable to
find work in industry, remain in the country, where only occasionally do they
find employment in agriculture.
The latent character of the agrarian surplus-population consists in the fact
that surplus labour-power in the countryside is always connected in some
degree or another with small and very small peasant economy. The agricultural
wage-worker usually has a small holding which serves as a means of
supplementing his earnings when he is in employment, or as the source of a
miserable livelihood when the is out of it. Such holdings are needed by
capitalism, so that it may have cheap labourers at its disposal.
 The agrarian surplus-population attains huge dimensions under capitalism. In Tsarist
Russia at the end of the nineteenth century latent unemployment in the countryside embraced
13,000,000 persons. In Germany in 1907, out of 5,000,000 peasant households, 3,000,000
petty ones formed a reserve army of labour. In the U.S.A. in the 1930s official data, obviously
tending towards under-estimation, showed 2,000,000 superfluous farmers. Every year in the
summer months between 1,000,000 and 2,000,000 American agricultural workers, taking their
families and household goods with them wander about the country in search of work.
The size of the agrarian surplus-population is especially large in the colonial countries.
Thus, in India, where about three-quarters of the population are engaged in agriculture, the
agrarian surplus-population constitutes an army many millions strong. A considerable section
of the rural population is made up of people who are in a state of chronic semi-starvation;
every year several millions of people die of hunger and epidemics.

The General Law of Capitalist Accumulation. Relative and

Absolute Impoverishment of the Proletariat

The development of capitalism leads, with the accumulation of capital, to

enormous wealth being concentrated in few hands at one pole of bourgeois
society, with a growth in luxury and parasitism, dissipation and idleness among
the exploiting classes; while at the other pole the burden of exploitation
becomes continually more intense, and unemployment and poverty increases
among those whose labour is the creator of all wealth.

The greater the social wealth, the functioning capital, the extent and
energy of its growth, and therefore also the absolute mass of the proletariat
and the productiveness of its labour, the greater is the industrial reserve
army.... The relative mass of the industrial reserve army increases
therefore with the potential energy of wealth. But the greater this reserve
army in proportion to the active labour army, the greater is the mass of a
consolidated surplus-population whose misery is in inverse ratio to its
torment of labour... This is the absolute, general law of capitalist
accumulation. (Marx, Capital, Kerr edition, vol. 1, p. 707.)

The general law of capitalist accumulation gives concrete expression to the

operation of the basic economic law of capitalism-the-law of surplus-value. The
striving to increase surplus-value leads to an accumulation of wealth in the
hands of the exploiting classes and to the growth of impoverishment and
degradation of the propertyless classes.
As capitalism develops, a process of relative and absolute impoverishment
of the proletariat takes place.
Relative impoverishment of the proletariat means that in bourgeois society
the working classs share of the total national income steadily decreases, while
at the same time the share 01 the exploiting classes steadily grows.

Notwithstanding the absolute growth of social wealth, the relative weight of the incomes
received by the working class sharply declines. Workers wages in American industry, shown as
a percentage of capitalists profits, were in 1889-70 per cent, in 1918-61 per cent, in 1929-47
per cent and in 1939-45 per cent.
In Tsarist Russia the total amount of nominal wages grew by nearly 80 per cent between
1900 and 1913 as a result of the increase in the number of industrial workers (real wages
falling the while), but the profits of the industrialists grew more than threefold.
According to bourgeois economists figures, in the U.S.A. in the 1920s 1 per cent of the
property-owners possessed 59 per cent of all the wealth, while the poorest sections which
made up 87 per cent of the population owned only 8 per cent of the national wealth.
In 1920-1 the largest property-owners of Britain, who made up less than 2 per cent of the
total number of property-owners, concentrated 64 per cent of all the countrys national wealth
in their hands, while 76 per cent of the population possessed only 7.6 per cent of it.

Absolute impoverishment of the proletariat means the direct lowering of its

standard of living.

The worker is impoverished absolutely, i.e., becomes directly poorer

than before, is forced to live worse, to eat more meagrely, to go without
food for longer periods, to be coop up in cellars and garrets
Wealth increases in capitalist society with incredible speed-alongside
the impoverishment of the working masses. (Lenin, Impoverishment in
Capitalist Society, Works, Russian edition, vol. XIII, pp. 405-6.)

Seeking to whitewash capitalist reality, bourgeois political economy tries to

deny the absolute impoverishment of the proletariat. Facts, however, prove
that under capitalism workers standard of living continually declines. This is
shown in many ways.
Absolute impoverishment is expressed in the fall in real wages. As
mentioned above, the increase in the prices of articles of mass consumption,
the rise in rents and the growth of taxes cause the real wages of the workers
to fall.
Absolute impoverishment of the proletariat is expressed in the increase in
the amount of unemployment and in its duration.
Absolute impoverishment of the proletariat is expressed in the growth in
the intensity of labour and deterioration of working conditions, which lead to
the worker ageing rapidly, losing his capacity for work, and becoming disabled.
In connection with the growth in the intensity of labour and the absence of
needful measures for ensuring safety at work an increase takes place in the
number of accidents and injures at work.
Absolute impoverishment of the proletariat is shown in the acute
deterioration in the nutrition and housing conditions of the working people,
which results in the undermining of their health, an increase in the death-rate
and a reduction in the expectation of life among the working-class people.

In the coal industry of the U.S.A. between 1878 and 1914 the number of accidents at work
entailing fatal consequences increased by 71.5 per cent. In the course of 1952 alone about
15,000 persons were killed and over 2,000,000 injured in the U.S.A. in the course of their
employment. In the British coal industry before the war one miner in every six was every year
the victim of an accident, but for 1949-53 the figure was one miner in every three.
According to the official data provided by the housing census, about 40 per cent of all
dwelling-houses in the U.S.A. fail to come up to the minimum standards of sanitation and
safety. The mortality rate among the working-class population is much higher than that
amongst the ruling classes. Infant mortality in the slums of Detroit is six times greater than the
average for the U.S.A.

The standard of living of the proletariat is particularly low in the colonial

countries, where extreme poverty and the extraordinarily high mortality among
the workers as a result of their exhausting labour and chronic hunger take on a
mass character.
The living standard of the poorest peasantry under capitalism is not higher
but often even lower, than that of the wage-workers. In capitalist society there
takes place not only the absolute and relative impoverishment of the
proletariat but also the ruin and impoverishment of the basic masses of the
peasantry. In Tsarist Russia there were several tens of millions of starving rural
poor. According to the data of American censuses, during recent decades about
two-thirds of the farm population of the U.S.A., as a rule, has lacked the
minimum needed for subsistence. For this reason, the vital interests of the
peasants themselves impel the latter to join forces with the working class.
The path of development of capitalism is one of impoverishment and semi-
starvation for the great majority of the working people. Under the bourgeois
order the growth in the productive forces brings the working class not an
easing of their position but increased poverty and privations.
At the same time the struggle of the working class against the bourgeoisie,
to overthrow the yoke of capital, develops, and its consciousness and degree of
organisation grows. The mass of the peasantry are increasingly drawn into this
struggle.

The Basic Contradiction of the Capitalist Mode of

Production

In proportion as capitalism develops, it links together the labour of multitudes

of people ever more closely. The social division of labour increases. Separate,
more or less independent branches of industry are transformed into a whole
series of mutually connected and inter-dependent branches. The economic
connections between separate enterprises, districts and entire countries grow
to an enormous extent.
Capitalism creates large-scale production both in industry and in
agriculture. The development of the productive forces engenders such
instruments and methods of production that they demand the joint labour of
many hundreds and thousands of workers. Production becomes continually
more concentrated. In this way capitalist socialisation of labour and of
production takes place.
This growing socialisation of labour occurs, however, in the interests of a
few private entrepreneurs who strive to increase their own profits. The product
of the social labour of millions of people becomes the private property of the
capitalists.
Consequently, a profound contradiction is inherent in the capitalist system:
production is a social matter, whereas the ownership of the means of
production remains private, capitalistic, and so is incompatible with the social
character of production. The contradiction between the social character of
production and the private, capitalist form of appropriation of the results of
production is the basic contradiction of the capitalist mode of production, and
becomes continually more acute as capitalism develops. This contradiction is
expressed in the intensified anarchy of capitalist production, in the growth of
class antagonisms between the proletariat and the working masses as a whole,
on the one hand, and the bourgeoisie on the other.

BRIEF CONCLUSIONS
(1) Reproduction is the continual renewal and ceaseless repetition of the
production-process. Simple reproduction means renewal of production on an
unchanged scale. Extended reproduction means renewal of production on an
enlarged scale. Typical of capitalism is extended reproduction, interrupted by
periodical economic crises, when production declines. Capitalist extended
reproduction means continual renewal and deepening of the relations of
exploitation.
(2) Extended reproduction under capitalism presupposes accumulation of
capital. Accumulation of capital means the fusion of part of surplus-value with
capital, or the transformation of part of surplus-value into capital. Capitalist
accumulation leads to an increase in the organic composition of capital, i.e., to
the more rapid growth of constant capital as compared with variable capital.
During capitalist reproduction the concentration and centralisation of capital
takes place. Large-scale production has decisive advantages over small, by
virtue of which the large and very large enterprises oust and subject to
themselves the small and medium capitalist concerns.
(3) With the accumulation of capital and the growth in its organic
composition the demand for workers is relatively reduced. An industrial reserve
army of unemployed is formed. The excess of labour-power in capitalist
agriculture produced by the ruin of the basic masses of the peasantry leads to
the creation of an agrarian surplus-population. The general law of capitalist
accumulation is the concentration of wealth in the hands of the exploiting
minority and the growth of poverty among the working people, i.e., the
overwhelming majority of society. Extended reproduction under capitalism
leads inevitably to relative and absolute impoverishment of the working class.
Relative impoverishment means the decline in the share taken by the working
class of the national income in the capitalist countries. Absolute
impoverishment is the direct lowering of the standard of living of the working
class.
(4) The fundamental contradiction of capitalism is the contradiction between
the social character of production and the private, capitalist form of
appropriation. As capitalism develops, this contradiction becomes more and
more acute, deepening the class antagonisms between bourgeoisie and
proletariat.
 CHAPTER X

ROTATION AND TURNOVER OF CAPITAL

Rotation of Capital. Three Forms of Industrial Capital

One of the conditions of existence of the capitalist mode of production is

developed commodity circulation, i.e., exchange of commodities through the
medium of money. Capitalist production is inseparably connected with
circulation.
Every individual capital begins its career as a certain sum of money, it
appears as money capital. The capitalist uses money to buy commodities of
certain kinds: (1) means of production, (2) labour-power. This act of circulation
can be expressed like this:

M-C<L/Pm.

In this diagram M stands for money, C for the commodity, L for labour-
power, and Pm for means of production. As a result of this change of form
which his capital has undergone, its owner has at his disposal everything he
needs for production. Whereas previously he owned capital in the form of
money, he now owns capital to the same amount but in the form of productive
capital.
So the first phase in the movement of capital is the transformation of
money capital into productive capital.
Following this begins the process of production, in which there takes place
the productive consumption of the commodities which the capitalist has
bought. It is expressed in the fact of the workers expending their labour, the
raw material being worked up, fuel being burnt and machinery wearing out.
Capital changes its form once again: as a result of the production-process the
capital invested appears embodied in a certain mass of commodities, it
assumes the form of commodity capital. However, in the first: place, these are
not the same commodities which the capitalist bought when he started up in
business, and secondly, the value of this mass of commodities is greater than
the original value of his capital, for in it is contained the surplus-value produced
by the workers.
This stage in the movement of capital can be shown like this:

C< L/Pm ... P ... C.

Here the letter P stands for production and the dots before and after it
show. that the process of circulation has been interrupted and a process of
production is taking place, while C stands for capital in the form of
commodities, the value of which has grown as a result of the workers surplus
labour.
Thus the second phase in the movement of capital consists of the
transformation of productive capital into commodity capital.
Capital does not stop short with this movement. The commodities which
have been produced have to be realised. In exchange for the commodities
which he sells the capitalist receives a certain sum of money.
This act of circulation may be depicted like this:

C - M.

Capital changes its shape a third time: it once more assumes the form of
money capital. At the end of this process its owner has a larger sum of money
than he had at the beginning. The aim of capitalist production, which is to
extract surplus-value, has been attained.
Thus the third stage in the movement of capital consists in the
transformation of commodity capital into money capital.
Having received money for the commodities he has sold, the capitalist
spends it once again on buying the means of production and labour-power
needed for further production, and the entire process starts anew.
These are the three phases through which capital passes successively in the
course of its movement. In each of these phases. capital .fulfils a
corresponding function. The transformation of money capital into the elements
of productive capital ensures the union of the means of production which
belong to the capitalists with the labour-power of the wage-workers: unless
such a union is effected the process of production cannot take place. The
function of productive capital is to create, with the labour of the wage-workers,
masses of commodities, new value, and consequently, surplus-value. The
function of commodity capital is, through the sale of the mass of commodities
which has been produced, first, to return to the capitalist in money form the
capital which he invested in production and, second, to realise in money form
the surplus-value created in the process of production.
Industrial capital passes through these three phases in the course of its
movement. By industrial capital we mean, in this instance, all capital which is
used for the production of commodities, regardless of whether industry or
agriculture is meant.

Industrial capital is the only form of existence of capital in which not

only the appropriation of surplus-value or surplus product but also its
creation is a function of capital. Therefore it gives to production its capitalist
character. Its existence includes that of class antagonisms between
capitalists and labourers. (Marx, Capital, Kerr edition, vol. II, p. 63.)

Consequently, all industrial capital performs a rotatory movement.

By the rotation if capital is meant the successive transformation of capital
from one form into another, its movement, which includes three phases. Of
these phases, the first and third take place in the sphere of circulation, while
the second belongs to that of production. Without circulation, that is, without
transformation of commodities into money and then of money back into
commodities, capitalist reproduction, i.e., the constant renewal of the
production-process, would be unthinkable.
The rotation of capital as a whole can be shown in the following form:

M - C< P/Pm P C M.

All three stages of the rotation of capital are very closely interconnected
and mutually dependent. The rotation of capital proceeds normally only so long
as its various phases flow uninterruptedly one into the other.
If capital stops short in its first phase, this means it drops into a barren
existence as money capital. If the hold-up occurs in the second phase, this
means that the means of production remain lifeless and labour-power remains
unemployed. If capital stops short in its last phase, unsold commodities
accumulate in the warehouses and clog the channels of circulation.
It is the second phase, when it is in the form of productive capital, that is of
decisive importance in the rotation of industrial capital; in this phase takes
place the production of commodities, value and surplus-value. In the other two
phases value and surplus-value are not created; in them only a change in the
form of capital takes place.
To the three phases of the rotation of capital correspond three forms of
industrial capital: (I) money capital, (2) productive capital and (3) commodity
capital.
Every capital exists simultaneously in all of these forms: at the same time
as one part of it appears as money capital being transformed into productive
capital, another part appears as productive capital being transformed into
commodity capital, and a third part appears as commodity capital being
transformed into money capital. Each part of it in turn assumes and discards,
one after another, all three of these forms. This is true not only of each capital
taken separately but also of all capitals taken together or, in other words, of
the aggregate social capital. Therefore, Marx declares, capital can be
understood only as a movement and not as a thing lying at rest.

This includes the possibility of distinct existence of the three forms of capital. Later on it
will be shown how merchant capital and loan capital are separated off from capital employed in
production. It is this distinction that provides the basis for the existence of the different groups
of the bourgeoisiemanufacturers, merchants bankers-who share out the surplus-value among
themselves.

Turnover of Capital. Time of Production and Time

of Circulation

Every capital undergoes rotation as an uninterrupted, constantly repeated

process. In this way capital is turned over.
By the turnover of capital is meant its rotation, considered not as a
momentary act but as a periodically renewed and repeated process. The period
of turnover of capital is the sum of the time of production and the time of
circulation. In other words, the period of turnover is the interval of time which
elapses between the moment when the capital is invested in a certain form to
the moment when it returns to the capitalist in the same form but increased by
the amount of the surplus-value.
The time of production is the time during which the capital is in the sphere
of production. The principal part of the time of production is the working period
during which the object being worked up undergoes directly the operation of
labour. The working period depends on the nature of the given branch of
production, the level of technique in the particular enterprise, and other
conditions. For example, in a spinning mill not more than a few days are
needed for a certain quantity cotton to be transformed into yarn, ready to be
sold, whereas in a locomotive-building works the completion of each
locomotive requires the work of a large number of workers over long period.

The time of production is usually longer than the working period. It includes as well those
breaks in the work during which the object of labour is undergoing the operation of certain
natural processes such as, e.g., the fermentation of wine, the tanning of skins, the growth of
wheat, etc.

The time of circulation is the time during which capital is being transformed
from the money form into the productive form and from that into the money
form. The length of the time of circulation depends on the conditions under
which the purchase of means of production and the sale of completed
commodities, are carried out, on the proximity of the market and on the level
of development of the means of transport and communication.

Fixed and Circulating Capital

The various parts of productive capital do not circulate in the same way.
The different ways in which separate parts of productive capital circulate derive
from the different ways in which each of them transfers its value to the
product. This underlies the division of capital into fixed and circulating.
By fixed capital is meant that part of productive capital which, though it
fully takes part in production, transfers its value to the product not all at once
but in parts, during the course of a series of periods of production. This is that
part of capital which is spent on the erection of buildings and works and on the
purchase of machinery and equipment.
The various elements of which fixed capital is composed usually serve the
purpose of production over many years; they wear out to a certain degree
every year and at last are found useless for further employment. This is what
is meant by the physical depreciation of machinery and equipment.
Besides physical depreciation, the instruments of production also undergo a
moral depreciation. A machine which has been in use for five or ten years may
be still sound enough, but if during that period another, improved, more
productive or cheaper machine of the same kind has been invented, this leads
to the depreciation of the old machine. For this reason the capitalist is
interested in completely using up his equipment in the shortest possible period
of time. Hence the capitalists endeavours to lengthen the working day, to
intensify labour, and to introduce uninterrupted shift work in their enterprises.
By circulating capital is meant that part of productive capital the value of
which during a single period of production is completely returned to the
capitalist in the form of money when the commodities are realised. This is that
part of capital which is spent on the purchase of labour-power, and also of raw
material, fuel and auxiliary materials, i.e., those means of production which do
not form part of fixed capital. The value of the raw material, fuel and auxiliary
materials is fully transferred to the commodities during a single period of
production, and the outlay on labour-power returns to the capitalist with an
increase (an addition of surplus-value).
During the time that it takes for fixed capital to complete a single turnover,
circulating capital manages to complete a number of turnovers.
When he sells his commodities, the capitalist receives a certain sum of
money, which is made up of: (1) the value of that part of the fixed capital
which has been transferred to the commodities in the process of production,
(2) the value of the circulating capital, (3) the surplus-value. So as to keep
production going, the capitalist uses once more part of the money he has
received, corresponding to circulating capital, to hire workers and to buy raw
material, fuel and auxiliary materials. The capitalist Uses part of the money
corresponding to the part of his fixed capital which has been transferred to the
commodities, to replace depreciation in his machinery, machine-tools,
buildings, etc., i.e., for amortisation.
Amortisation means the gradual replacement in money form of the value
of fixed capital, through periodical deductions corresponding to the extent
of its depreciation. Part of the amortisation deductions is spent on capital
repairs, i.e., on partial replacement of worn-out equipment, tools, factory
buildings, etc. But the bulk of the amortisation deductions is kept by the
capitalists in money form (usually in the banks) so as to be able when
necessary, to buy new machinery in place of the old or to erect new
buildings to replace those which have become unfit for further use.

Marxist political economy distinguishes between the division of capital into fixed and
circulating and its division into constant and variable. Constant and variable capital differ
from each other in the roles which they play in the process whereby the workers are
exploited by the capitalists, whereas fixed and circulating capital differ in the manner in
which they circulate.
These two ways of dividing capital may be shown in the following fashion:

Division according to Division according

role played in process to manner of
of exploitation circulation
__________________________________________________________
____
Factory buildings and
outbuildings.
Equipment, Fixed capital.
Constant capital machinery.
Raw material, fuel,
auxiliary materials. Circulating capital.
Variable capital Workers wages

Bourgeois political economy recognises only the division of capital into fixed and
circulating, since this way of dividing capital does not in itself show the role of labour-
power in creating surplus-value, but, on the contrary, conceals the radical difference
between the capitalists expenditure on the hiring of labour-power and that on raw
material, fuel, etc.

Annual rate of Surplus-Value. Ways of Accelerating the

Turnover of Capital

The speed with which a given amount of variable capital is turned over
has a bearing on the amount of surplus-value which a capitalist can
extract from his workers during a year.
Let us take two capitals, in each of which the variable part is 25,000
dollars, the rate of surplus-value being in each case 100 per cent. Let us
suppose that one of them is turned over once in one year whereas the
other is turned over twice. This means that the owner of the second
capital, though he possesses the same amount of money, is able to hire
and exploit during one year twice as many workers as the owner of the
first. At the end of a year, therefore, the results shown by the two
capitalists will differ. The first will receive 25,000 dollars of surplus-value,
while the second will receive 50,000.
 The rapidity of the turnover of capital also has a bearing
correspondingly on the size of that part of the circulating capital which is
laid out for buying raw material, fuel and auxiliary materials.
The annual rate of surplus-value means the proportion which the
amount of surplus-value produced per year bears to the variable capital
invested. In our example the annual rate of surplus-value, expressed as a
percentage, would be, in the case of the first capitalist
25,000/25,000=100 per cent, and in that of the second capitalist
50,000/25,000=200 per cent. Hence it is clear that it is to the interest of
capitalists to accelerate the turnover of capital, since this acceleration
enables them to obtain the same amount of surplus-value with a smaller
capital or with the same capital to obtain a larger sum of surplus-value.

Marx showed that by itself the acceleration of the circulation of capital does not
create a single atom of new value. More rapid turnover of capital and more rapid
realisation in money form of the surplus-value created in a given year only enables the
capitalists to hire with one and the same quantity of capital a larger number of workers,
whose labour creates a larger amount of surplus-value per year.

As we have seen, the time of turnover of capital consists of the time of

production and time of circulation. The capitalist strives to shorten the
duration of both of these.
The working period necessary for the production of commodities
becomes shorter as the productive forces develop and technique grows.
For example, present-day methods of smelting pig-iron and steel enable
these processes to be completed many times faster, compared with the
methods which were used 100-150 years ago. Noteworthy results have
also been achieved by progress in the organisation of production, e.g.,
the transition to serial or mass production.
The interruptions in the work which form part of the time of
production over and above the working period are also shortened in many
cases as technique advances. Thus, the process of tanning hides formerly
took weeks, but at present, thanks to the use of the latest chemical
methods, it takes only a few hours. In a number of branches of
production extensive use is made of catalysts, i.e., substances which
speed up the action of chemical processes.
In order to accelerate the turnover of capital employers resort also to
lengthening the working day and intensifying labour. If with a 10-hour
working day the working period lasts 24 days, then a. lengthening of the
working day to 12 hours shortens the working period to 20 days and
correspondingly accelerates the turnover of capital. The same result is
given by an intensification of labour, under which the worker expends in
60 minutes the same amount of energy as previously he expended, say,
in 72 minutes.
Furthermore, the capitalists bring about an acceleration in the
turnover of capital by shortening the time of circulation of capital. Such a
shortening is made possible by the development of transport and of the
postal and telegraph services, and by the improved organisation of trade.
But reduction. of the time of circulation is counteracted, first, by the
extremely irrational distribution of production in the capitalist world,
which necessitates the transport of commodities over vast distances, and,
secondly, the sharpening of capitalist competition and growth of
difficulties in finding markets.
The surplus-value created during a given period passes through
circulation along with the circulating capital. The shorter the period of
turnover of capital, the more quickly the surplus-value which the workers
have created is realised in money form and the more quickly it can be
used to extend production.

BRIEF CONCLUSIONS
(1) Each individual industrial capital goes through an uninterrupted
movement in the form of a rotation comprising three phases. To these
three phases correspond three forms of industrial capital-money,
productive and commodity distinguished by their respective functions.
(2) The rotation of capital, taking place not as an isolated act but as a
periodically renewed process, is called the turnover of capital. The period
of turnover of capital means the sum of the time of production and the
time of circulation. The principal part of the time of production is the
working period.
(3) Each productive capital is divided into two parts, distinguished by
the manner of their turnover: fixed capital and circulating capital. Fixed
capital is the part of productive capital the value of which is transferred to
commodities not all at once but little by little, during a series of periods of
production. Circulating capital is that part of productive capital the value
of which is in the course of a single period of production fully returned to
the capitalist when the given commodities are sold.
(4) Acceleration of the, turnover of capital enables the capitalists to
complete during one year, with the same capital, a greater number of
turnovers, and, therefore, to hire more workers, who produce a larger
amount of surplus-value. The capitalists endeavour to speed up the
turnover of capital both by improving technique and, especially, by
stepping up the exploitation of the workers-through lengthening the
working day and intensifying labour.
 CHAPTER XI
AVERAGE PROFIT AND PRICE OF PRODUCTION

Capitalist Costs of Production and Profit. The Rate of

Profit

The surplus-value created by the labour of the wage-workers in the

process of production is the source from which are drawn the incomes of
all the exploiting classes of capitalist society. Let us first examine the laws
by force of which surplus-value assumes the form of the profit of those
capitalists who have invested their capital in the production of
commodities.
The value of a commodity produced in a capitalist enterprise break
down into three parts: (1) the value of the constant capital, (part of the
value of the machinery and buildings, the value of the raw material, fuel,
etc.); (2) the value of the variable capital; and (3) surplus-value. The
magnitude of a commoditys value is determined by the amount of
socially-necessary labour required for producing it. But the capitalist does
not, expend his own labour in producing the commodity, he lays out his
capital for this purpose.
The capitalist costs of production of a commodity consist of the
outlay of constant and variable capital (c+v), i.e., of expenditure on
means of production and on workers wages. The cost of the commodity
to the capitalist is measured by the outlay of capital, its cost to society is
measured by the outlay of labour. Therefore the capitalist costs of
production of a commodity are less than its value, or the real costs of its
production (c+v+s). The difference between value, or real costs of
production, and capitalist costs of production is equal to the surplus-value
(5) which the capitalist appropriates without compensation.
When the capitalist sells a commodity which has been produced in
his enterprise, surplus-value makes its appearance as a definite surplus
over and above the capitalist costs of production. The capitalist sets this
surplus, in determining the profitability of the enterprise, against the
capital which he has advanced, i.e., all the capital invested in production.
Surplus-value, placed in relation to total capital, take the form of profit.
In so far as surplus-value is compared not with variable capital only
but with capital as a whole-the difference between constant capital, spent
on purchasing means of production, and variable capital, spent on hiring
labour-power, is hidden. As a result the deceptive appearance is created
that profit is engendered by capital itself. In reality, however, the source
of profit is surplus-value, created only by the workers, by labour-power,
the value of which is embodied in variable capital. Profit is surplus-value
compared with the total capital invested in production and appearing
outwardly to be engendered by the capital. Owing to this peculiarity of
profit Marx calls it the transmuted form of surplus-value.
 In similar fashion as the form of wages conceals the exploitation of wage-labour,
creating the false impression that all labour is paid for, so also the form of profit in its
turn hides from view the relationship of exploitation, creating a misleading appearance
of profit being created by capital. Thus the forms assumed by capitalist production
relations obscure and mask their true nature.

The degree of profitability of a capitalist enterprise for its owner is

determined by the rate of profit. The rate of profit is the proportion
between the surplus-value and the total capital advanced, expressed as a
percentage. For example, if the total capital advanced is 200,000 dollars,
and the years profit amounts to 40,000 dollars, then the rate of profit =
40,000/200,000x100
or 20 per cent.
Inasmuch as the total capital advanced is greater than the variable
capital, the rate of profit (s/c+v) is less than the rate of surplus-value
(s/v). Suppose, in our example, that the capital of 200,000 dollars
consists of 160,000 dollars of constant capital and 40,000 dollars of
variable capital, then the rate of surplus is 40,000/40,000x100=100 per
cent, but the rate of profit is 20 per cent, or one-fifth of the rate of
surplus-value.
The rate of profit depends first of all on the rate of surplus-value.
The higher the rate of surplus-value the higher, other things being equal,
will be the rate of profit. All the factors which increase the rate of surplus-
value, i.e., which raise the degree of exploitation of labour by capital
(lengthening the working day, raising the intensity and productivity of
labour, etc.) also increase the rate of profit.
Further, the rate of profit depends on the organic composition of
capital. As we know, the organic composition of capital is the proportion
between constant and variable capital. The lower the organic composition
of capital, i.e., the larger the relative weight in the capital of its variable
part (the value of labour-power), the larger, with the same rate of
surplus-value, will the rate of profit be. And, conversely, the higher the
organic composition of capital, the lower the rate of profit.
One of the factors which affect the rate of profit is economy in the
use of constant capital. Finally, the rapidity of turnover of capital affects
the rate of profit. The more rapid the turnover of capital, the higher the
annual rate of profit, which represents the relation between the surplus-
value produced, in the year to the total capital advanced. And,
conversely, a slowing down in the turnover of capital leads to a lowering
of the annual rate of profit.

Formation of the Average Rate of Profit, and

Transformation of the Value of Commodities into their
Price of Production

Under capitalism the distribution of capital among various branches

of production and the development of technique take place in a ferocious
competitive struggle.
Competition within a particular branch of production must be
distinguished from competition between branches.
Competition within a branch means competition among enterprises
in one and the same line of production, all producing commodities of the
same kind, each of which tries to secure more advantageous disposal of
its commodities and to obtain additional profit. The separate enterprises
concerned work in varying conditions and differ one from another in their
scale and in their level of technical equipment and organisation of
production. Consequently the individual values of the commodities
produced in the different enterprises are not the same. But competition
between enterprises in one and the same branch of production leads to
the price of commodities being determined not by their individual values
but by the social value of these commodities. And the magnitude of this
social value of the commodities concerned, as has been mentioned,
depends on the average conditions of production in the particular branch.
As a result of the fact that the price of commodities is determined by
their social value, those enterprises gain in which the, technique of
production and the productivity of labour is higher than the average level
in the branch concerned and, consequently, where the individual value of
the commodities produced is lower than the social value. These
enterprises receive an additional profit, or super-profit, which is a form of
the extra surplus-value which we have examined earlier (in Chapter VII).
Thus, as a result of competition within a particular branch of production
varying rates of profit are formed in different enterprises of the branch in
question. Competition between different enterprises of one and the same
branch leads to a squeezing-out of the small and medium enterprises by
the large-scale ones. In order to hold their ground in the competitive
struggle, those capitalists who own backward enterprises endeavour to
introduce in them the technical improvements adopted by their
competitors who own technically more developed enterprises. As a result
a heightening of the organic composition of capital takes place in the
branch as a whole, the super-profit which the capitalists who own the
technically more advanced enterprises have been receiving now
disappears, and a general lowering of the rate of profit takes place. This
obliges the capitalists again to introduce technical improvements. Thus, in
the process of competition within a particular branch, there takes place
the development of technique and the growth of the productive forces.
Competition between branches means competition between the
capitalists of different branches of production over the most profitable
way of investing capital. The capitals invested in different branches of
production have varying organic compositions. Since surplus-value is
created only by the labour of wage-workers, in enterprises in those
branches of production where a low organic composition of capital
prevails a capital of the same size produces a relatively large mass of
surplus-value. In enterprises with a higher organic composition of capital,
a relatively smaller amount of surplus-value is produced. The competitive
struggle between capitalists of different branches leads, however, to the
amount of profit on capitals of equal size becoming equalised.
Let us suppose that in society there are three branches of
production-leatherworking, textiles and engineering-with capitals of the
same size but differing in organic composition. The amount of the capital
advanced in each of these branches is 100 units (millions of pounds
sterling, say). The capital of the leatherworking branch consists of 70
units of constant capital and go units of variable, that of the textile
branch consists of 80 units of constant and 20 of van able, and that of the
engineering branch consists of go units of constant and 10 units of
variable. Let the rate of surplus-value m all three branches be the same
and be 100 per cent. So, then, in the leatherworking branch 30 units of
surplus-value will be produced in the textile branch 20 and in the
engineering branch 10. The value of the commodities in the first branch
will be equal to 130, in the second to 120, in the third to 110, and in all
three branches together-360 units.
If the commodities are sold at their values, then in the
leatherworking branch the rate of profit will be 30 per cent, in the textile
branch 20 per cent and in the engineering branch 10 per cent. Such a
distribution of profit will be quite advantageous to the capitalists in the
leatherworking branch of production, but disadvantageous to the
capitalists in the engineering branch. Under these conditions, the
entrepreneurs in the engineering branch will seek more advantageous
application for their capitals. This application for their capitals they will
find in the leatherworking branch. A flow of capital from the engineering
branch to the leatherworking branch will take place. In consequence, the
quantities of commodities produced in the leatherworking branch will
grow, competition will inevitably become more acute and will oblige the
entrepreneurs in this branch to lower the prices of their commodities,
which it will lead also to a reduction in the rate of profit. Conversely, in
the engineering branch the quantities of commodities produced will fall
and the changed relationship between supply and demand will enable the
entrepreneurs to raise the process of their commodities, as a result of
which the rate of profit will also rise.
The fall in prices in the leatherworking branch and the rise in prices
in the engineering branch will continue until the rate of profit in all three
branches becomes approximately the same.
This will happen when the commodities produced by all three
branches are sold at 120 units (130+120+110)/3. The average profit of
each of the branches will then be 20 units. The average profit is an equal
profit on capitals of the same, magnitude invested in different branches of
production.
And so, competition between branches leads to the differing rates of
profit existing in different branches of capitalist production being
equalised to a general (or average) rate of profit. This equalisation takes
place through a flow of capital (and consequently, also of labour) from
Some branches to others.
Through the formation of an average rate of profit the capitalists of
some branches (in our example, leatherworking) are deprived of part of
the surplus-value created by their workers. On the other hand, the
capitalists in other branches (in our example, engineering) realise extra
surplus-value. This means that the first sell their commodities at prices
below their value, while the second sell them at prices above their value.
The price of a commodity in any of the branches is now composed of the
cost of production (100 units) and the average profit (20 units).
The price which equals the cost of production of a commodity plus
the average profit is the price of production. In the separate enterprises
of a particular branch, as a result of the differences in the conditions of
production, there exists different individual prices of production which are
determined by the individual costs of production plus the average profit.
But the commodities are realised at an averaged-out, uniform price of
production. The process of formation of an average rate of profit and
price of production may be depicted in the form of the following table:

Branches of Constant Variable Surplus- Value of Average Price of Variation of

production capital capital value commodities rate of production of price of
profit commodities production
(%) from value
Leather 70 30 30 130 20 120 -10
working
Textile 80 20 20 120 20 120 Equal
Engineering 90 10 10 110 20 120 +10
Total 240 60 60 360 20 360

The commodities produced in each of the three branches are sold at

120 units (millions of dollars, say). Yet the value of the commodities in
the leatherworking branch is 130 units, in the, textile branch 120 and in
the engineering branch 110. In contrast to what happens under simple
commodity production, under capitalism commodities are sold not at
prices which correspond to their value but at prices which correspond to
their prices of production.
The transformation of value into price of production is result of the
historical development of capitalist production. Under conditions of simple
commodity production the market price of commodities in general
correspond to their values. In the first stages of capitalisms development
significant differences were still retained between the rates of profit in
different branches of production, since the separate branches were as yet
insufficiently interconnected, and craft and other restrictions in existed
which hindered the free flow of capital from some branches to others. The
process of forming the average rate of profit and transforming value into
price of production was brought to completion only with the triumph of
capitalist machine industry. With the transformation of value into price of
production the basic economic law of capitalism, the law of surplus-value,
becomes concrete and finds expression in their form of the average rate
of profit.
Bourgeois economists try to refute Marxs labour theory of value by
referring to the fact that in particular branches the prices of production do
not coincide with the values of the commodities. In reality, however, the
law of value fully retains its force in capitalist conditions, for the price of
production is merely a modified form of value.
This is shown by the following circumstances:
First, some entrepreneurs sell their commodities above their value,
others below, but the capitalists as a whole, taken together, realise the
full amount of the value of their commodities. On the scale of society as a
whole the sum total of prices of production is equal to the sum total of
the values of all commodities.
Second, the sum total of the profit received by the whole class of
capitalists is equal to the sum total of the surplus-value produced by all
the unpaid labour of the proletariat. The magnitude of the average rate of
profit depends on the magnitude of the surplus-value produced in society.
Third, a reduction in the value of commodities leads to a reduction in
their prices of production, an increase in the value of commodities leads
to the raising of their prices of production.
Thus, the law of the average rate of profit operates in capitalist
society; it means that the different rates of profit which depend on the
differences in the organic composition of capital in different branches of
production are levelled out, as a result of competition, to a common
(average) rate of profit. The law of the average rate of profit, like all the
laws of the capitalist mode of production, manifests itself spontaneously
through innumerable variations and fluctuations. In the struggle for the
most profitable application of capital a ferocious competitive struggle is
waged between the capitalists. They endeavour to place their capital in
those branches of industry which promise them the largest profits. In the
hunt for high profits a flow of capita! from one branch to another takes
place, and as a result of this an average rate of profit is established.
Thus, the distribution of labour and means of production between the
different branches of capitalist production takes place on the basis of the
law of the average rate of profit. This means that in a developed capitalist
society the law of value operates as the spontaneous regulator of
production, working through the price of production.
The price of production is that average magnitude around which
fluctuate, in the last analysis, the market prices of commodities, i.e., the
prices at which commodities are actually bought and sold on the market.
The equalisation of the rate of profit and the transformation of value
into price of production still further disguise the relationship of
exploitation, still further conceal the true source of the enrichment of the
capitalists.

The actual difference of magnitude between profit and surplus-

value in the various spheres of production now conceals
completely the true nature and origin of profit, not only for the
capitalist, who has a special interest in deceiving himself on this
score, but also for the labourer. By the transformation of values into
prices of production, the basis of the determination of value is itself
removed from direct observation. (Marx, Capital, Kerr edition, vol.
III, p. 198.)

In reality the formation of an average rate of profit means a

redistribution of surplus-value among the capitalists in different branches
of production. Part of the surplus-value created in branches with a low
organic composition of capital is appropriated by the capitalists in the
branches with a high composition of capital. It follows that the workers
are exploited not only by those capitalists for whom they work but by the
entire class of capitalists as a whole. The entire capitalist class has an
interest in raising the degree to which the workers are exploited, since
this leads to a rise in the average rate of profit. As Marx showed, the
average rate of profit is dependent on the degree to which the whole of
labour is exploited by the whole of capital.
The law of the average rate of profit expresses, on the one hand, the
contradictions and the competitive struggle among the industrial
capitalists over the sharing-out of surplus-value, and on the other hand,
the profound antagonism between two mutually hostile classes, the
bourgeoisie and the proletariat. It testifies to the fact that in capitalist
society the bourgeoisie as a class opposes the proletariat as a whole,
that a struggle for particular interests of the workers or of particular
groups of workers, a struggle against particular capitalists, cannot lead to
a radical change in the position of the working class. The working class
can free itself from the yoke of capital only by overthrowing the
bourgeoisie as a class, only by abolishing the system of capitalist
exploitation itself.

Tendency of the Rate of Profit to Fall

As capitalism develops, the organic composition of capital steadily

rises. Each separate entrepreneur, more and more replacing workers by
machines, strives to cheapen production, extend the market for his
commodities and win super-profit for himself. But when the technical
attainments of particular enterprises become widespread, a rise in the
organic composition of capital takes place in the majority of enterprises,
which leads to a fall in the general rate of profit.
A more rapid growth of fixed capital compared with circulating capital
acts in the same direction, leading as it does to a slowing down in the
turnover of the whole capital.
Each capitalist, in raising the level of technique, endeavours to obtain
the largest possible profit, but the result of the activities of all the
capitalists directed to achieving this purpose is something which none of
them wanted-a lowering of the general rate of profit.

Let us take our previous example. The sum-total of all the capitals, amounting to
300 units, is made up of 240 units of constant and 60 of variable capital. With the rate
of surplus-value at 100 per cent, 60 units of surplus-value are produced, and the rate of
profit is 20 per cent. Let us suppose that during twenty years the total amount of capital
grows from 300 to 500 units. At the same time as a result of the progress of technique,
the organic composition of capital grows. Consequently, the 500 units are divided into
425 units of constant and 75 units of variable capital. In this case, given the previous
rate of surplus-value, 75 units of surplus-value will be created. The rate of profit will now
be 75/500x100=15 per cent. The amount of profit has grown from 60 to 75 units, but
the rate of profit has fallen from 20 per cent to 15 per cent.

So, then, a rise in the organic composition of capital leads to a

lowering of the average rate of profit. There are a number of factors,
however, which counteract the lowering of the rate of profit.
 In the first place, the exploitation of the working class grows. The
development of the productive forces of capitalism, which expresses itself
in the increasing organic composition of capital, leads at the same time to
a growth in the rate of surplus-value. Owing to this, the lowering of the
rate of profit takes place more slowly than it would have done had the
rate of surplus-value remained the same. Secondly, technical progress,
raising the organic composition of capital, gives rise to unemployment,
which presses upon the labour market. This enables the employers to
reduce wages fixing them well below the value of labour-power.
Thirdly, as the productivity of labour grows, there is a fall in the
value of the means of production-machinery, equipment, raw material,
etc. This slows down the growth in the organic composition of capital,
and, consequently, counteracts the lowering of the rate of profit.

Let us suppose that an employer compels his workers, who formerly were
operating five looms, to operate twenty. As a result of the growth in the productivity of
labour in the manufacture of looms, however, the value of looms has fallen by half.
Consequently, twenty looms are now worth not four times as much as five but only twice
as much. Therefore the share of constant capital per worker grows not fourfold but only
twofold.

Fourthly, the lowering of the average rate of profit is counteracted by

economy in constant capital effected by the capitalist at the expense of
the health and lives of his workers. In order to enlarge their profits
employers compel their workers to do their work in workshops which are
too small and without adequate ventilation, and they economise on the
devices which are needed for safety. In consequence of this niggardliness
on the part of the capitalists, the workers health is undermined, an
enormous number of accidents happen, and the death rate rises among
the working population.
Fifthly, the fall in the rate of profit is held up because of the non-
equivalent exchange which exists in the sphere of foreign trade, when the
entrepreneurs of advanced capitalist countries, through selling their
commodities in colonial countries, obtain super-profit.
All these counteracting factors do not abolish but merely weaken the
lowering of the rate of profit and convert it into a tendency. Thus, the
raising of the organic composition of capital has as its inevitable
consequence the law of the tendency of the general (or average) rate of
profit to fall.
The fall in the rate of profit does not mean a reduction in the amount
of profit, i.e., in the total volume of surplus-value produced by the
working class. On the contrary, the amount of profit grows both in
connection with the rise in the rate of surplus-value and as a result of the
growth in the number of workers exploited by capital. For example, in the
U.S.A. the total of industrial profit, calculated from the official data of the
Census of Industry, amounted in 1859 to 316 million dollars, in 1869 to
516 million, in 1879 to 660 million, in 1889 to 1,513 million, and in 1899
to 2,245 million.
The capitalists try by intensifying to the utmost the exploitation of
the workers to weaken the tendency of the rate of profit to fall. This leads
to the contradictions between proletariat and bourgeoisie becoming more
acute.
The law of the tendency of the rate of profit to fall intensifies the
struggle within the bourgeoisie itself over the distribution of the total
mass of profit.
In their drive for higher profits the capitalists invest their capital in
backward countries, where working hands are cheaper and the organic
composition of capital is lower than in countries with highly-developed
industry: and they begin to exploit the peoples of these countries
intensively. This leads to a sharpening of the contradictions between the
developed capitalist countries and the backward ones, between
metropolitan countries and colonies.
Further, in order to keep prices at a high level, entrepreneurs join
together in associations of various kinds. By this means they manage to
secure high profits.
Finally, striving to make up for the fall in the rate of profit by
increasing its amount, the capitalists extend the scale of production far
beyond the limits of demand effective in terms of money. In this
connection, the contradictions caused by the tendency of the rate of profit
to fall make themselves felt especially sharply during crises.
The law of the tendency of the rate of profit to fall is one of the
clearest indications of the historical limitations of the capitalist mode of
production. In sharpening the contradictions of capitalism, this law shows
vividly that at a certain stage the bourgeois system becomes an obstacle
to the further development of the productive forces.

BRIEF CONCLUSIONS
(1) Profit is surplus-value taken in comparison with the-total capital
invested in production and appearing from outside as though produced by
this capital. The rate of profit means the relation of the amount of
surplus-value produced to the total capital, expressed as a percentage.
(2) Competition within a branch of production leads to the prices of
identical commodities being determined not by the individual but by the
social value of these commodities. Competition between branches leads
to a flow of capital from one branch to another, to the formation of an
average rate of profit throughout the field of capitalist production. On the
basis of the law of the average rate of profit there takes place a
distribution of labour and means of production among the various
branches of capitalist economy.
(3) As a result of the equalisation of the rate of profit commodities
are sold not at their values but as their prices of production. The price of
production is the price which equals the cost of producing the commodity
plus the average profit. The price of production is a modified form of the
value. The sum-total of the prices of production is equal to the sum-total
of the values of all commodities; with a change in the value o
commodities their price of production also changes.
(4) As capitalism develops, in proportion to the growth in the organic
composition of capital the average rate of profit shows a tendency to fall.
At the same time the amount of profit steadily grows. The law of the
tendency of the average rate of profit to fall leads to the contradictions of
capitalism becoming acute.
CHAPTER XII

MERCHANT CAPITAL AND MERCHANTS

PROFIT
Merchants Profit and its Source

Merchant and money-lenders capital preceded industrial capital in

history. Under the capitalist mode of production these forms of capital
lose their previous independent role; their functions are reduced to
serving industrial capital. Consequently, under capitalism, merchant
capital and interest-bearing capital are essentially different from what
they were in their pre-capitalist forms.
Industrial capital, as already stated, assumes in the course of its
rotation three successive forms: money capital, industrial capital and
commodity capital, which have different functions. These functional forms
of industrial capital come to stand apart from each other at a certain level
of its development. From industrial capital employed in production there
is separated off merchant capital, in the shape of the capital of the
merchant, and loan capital in the shape of bank capital. Within the
capitalist class three groups are formed, all sharing in the appropriation
of surplus-value: manufacturers, merchants and bankers.
Merchant capital is capital employed in the sphere of commodity
circulation. In this sphere no surplus-value is created. Whence, then,
does the merchants profit arise? If the capitalist manufacturer himself
were to undertake the realisation of his commodities, he would have to
spend part of his capital on equipping commercial establishments, hiring
salesmen, and other expenses connected with trade. In order to do this
he would have to increase the amount of capital advanced or else, with
the same amount of capital advanced, to reduce the scale of production.
And in either case his profit would fall. The manufacturer prefers to sell
his commodities to a middleman-a merchant capitalist, who as his special
task undertakes the selling of goods, the forwarding of them to the
consumer. This specialisation of merchant capital in the function of
commodity circulation enables the time and expense connected with
circulation to be reduced. Merchant capital, in serving the process of
realisation of the commodities of many industrial capitalists, thereby
reduces the part of social capital which is diverted from production to the
circulation process. Thanks to having transferred the task of realising his
commodities to the merchant, the industrial capitalist speeds up the
turnover of his capital and this leads to an increase in his profits. This
enables the manufacturer in his own interests to surrender to the
merchant a certain share of the surplus-value, which constitutes the
merchant capitalists profit. Merchants profit is a part of the surplus-
value, which the manufacturer surrenders to the merchant in return for
realising his commodities.
The realisation of commodities is effected by merchant capital by
means of exploiting commercial employees. The labour of these wage-
workers who are engaged in realising commodities, i.e., in transforming
commodities into money and money into commodities, creates neither
value nor surplus-value, but it enables the merchant capitalist to
appropriate part of the surplus-value created in production.

Just as the unpaid labour of the labourer of the productive

capital creates surplus-value for it in a direct way, sot:, unpaid labour
of the commercial wage-workers secures, share of this surplus-value
for the merchants capital. (Marx, Capital, Kerr edition, vol. III, p.
346.)

The working day of commercial employees, like that of workers

engaged in production, breaks down into two parts: during the necessary
time they effect the realisation of that part of the surplus-value created in
the sphere of production which replaces the capitalists outlay on the
hiring of their labour-power, and during the surplus time they work gratis
for the capitalists, enabling them to appropriate merchants profit.
Consequently the workers in the sphere of trade are subjected to
exploitation on the part of the merchant capitalists just as the workers
who produce commodities are subjected to exploitation by the
manufacturers.
If he is to realise a certain mass of commodities, the merchant must
advance for a certain period a capital of appropriate amount. He tries to
obtain as large profits as possible on this, capital. If the rate of
merchants profit turns out to be less than the average rate of profit, the
business of merchant becomes unprofitable, and merchants transfer their
capital to industry, agriculture or some other branch of the economy.
Conversely, a high rate of merchants profit attracts industrial capital into
commerce. Competition between the capitalists leads to the level of
merchants profit being determined by the average rate of profit, the
average profit being formed in relation to all capital, including that which
operates in the sphere of circulation.
Thus, not only the capital of industrial capitalists but also merchant
capital takes part in the process of evening-out the rate of profit, as a
result of which both industrial and merchant capitalists receive the
average rate of profit in proportion to the amount of capital expended by
them. It follows that the industrial capitalists do not realise all the profit
created in industry but only that part of it which constitutes the average
profit on the capital which they have invested. The merchant capitalists
sell commodities at their price of production, which includes the average
profit both of the industrialist and of the merchant. Because of this it is
possible for them to realise the average profit on the capital they have
invested out of the difference between their buying and selling prices.
 In the form of merchants profit the true source of the increase of capital is
still more closely hidden than it is in the form of industrial profit. The merchants
capital plays no part in production. The formula for the movement of merchant
capital is: M-C-M. Here the stage of productive capital is missing and the link with
production outwardly seems broken. A misleading appearance is created that profit
is arising from trade itself by way of additions to the price and the selling of
commodities above their price of production. What in fact happens, as has been
shown, is the opposite: the manufacturer sells the commodity to the merchant
below the price of production, surrendering to him part of his profit.

Merchant capital not only takes part in realising the surplus-value

created in production, it also subjects the working people to additional
exploitation as consumers. Striving to obtain additional profit, the
merchant capitalists inflate prices by all means available, extensively
practise the giving of short weight and short measure to customers, and
sell poor-quality and adulterated goods.
One of the sources of merchants profit is the exploitation of petty
commodity producers by merchant capital. Merchant capitalists compel
peasants and craftsmen to sell them the products of their labours at low
prices and at the same time the latter buy from the merchant capitalists
tools, equipment, raw material, etc., at high prices. The share taken by
commercial middlemen of the retail price of agricultural products in the,
U.S.A. rose between 1913 and 1934 from 54 per cent to 63 per cent.
All this leads to enhanced impoverishment of the working people and
still further sharpens the contradictions of capitalism.

Costs of Circulation

The process of capitalist circulation of commodities demands, a

certain outlay for expenses. These expenses, connected with the
maintenance of the sphere of circulation, are the costs of circulation.
Two kinds of capitalist costs incurred in the sphere of trade must be
distinguished one from the other: first, net costs of circulation which are
directly connected with the processes of purchase and sale of goods and
derive from the peculiarities of the capitalist system; and, second, costs
arising from the extension of the production-process into the sphere of
circulation.
The predominant and continually growing share of the costs of
circulation in capitalist trade is taken by the net costs. To the net costs of
circulation belong the expenses connected with the transformation of
commodities into money and money into commodities. To this category
belong the expenses arising from competition and speculation, from
advertising, the greater part of the expenditure on the wages of
commercial employees, on the keeping of accounts, correspondence, the
upkeep of commercial offices, etc. Net costs of circulation, as Marx
showed do not add one jot of value to the commodity. They constitute a
direct deduction from the total sum of values produced in society, and are
covered by the capitalists from the total mass of surplus-value produced
by the labour of the working class. The increase in the net costs of
circulation testifies to the growth of waste under capitalism.
 In the U.S.A. recorded expenses on advertisement alone amounted in 1934 to 1.6
milliard dollars, in 1940 to 2.1 milliard and in 1953 to 7.8 milliard.

With the development of capitalism and the growing difficulties of

realising commodities, a colossal trading apparatus with manifold links is
built up. Before they reach the hands of the consumer, commodities pass
through the hands of a whole army of merchants, speculators, retailers
and agents.
To the category of costs connected with the extension of the
production process into the sphere of circulation belong expenses which
are socially necessary and do not depend on the peculiarities of the
capitalist system-on the finishing, transport and packing of goods. Every
product is available to the consumer only when it has been delivered to
him. The costs of finishing, transport and packing of goods
correspondingly increase the cost of production of commodities. The
labour which the workers expend in this work transfers to the
commodities the value of the means of production expended and adds
new value to the value of the commodity.
The anarchy of capitalist production and crises, the competitive
struggle and speculation, bring about the piling up of extraordinary stocks
of commodities and lengthen and distort their channels of movement,
which leads to huge unproductive expenditure being incurred. In the
overwhelming majority of cases capitalist advertisement is connected to a
greater or less extent with swindling the customer and gives rise to
superfluous and expensive packing of goods. This means that an ever
larger part of the expenses for transport, storage and packing of
commodities are transformed into net costs caused by capitalist
competition and anarchy of production. The rise in the level of the costs
of circulation is one of the indices of intensified parasitism in bourgeois
society. The cost of capitalist trade weigh heavily upon the working
people as consumers.

In the U.S.A. costs of circulation amounted in 1929 to 31 per cent and in 1935 to
32.8 per cent of the total amount of retail trade. In the capitalist countries of Europe the
costs of circulation amount to approximately a third of the total retail turnover.

Forms of Capitalist Trade. Commodity Exchanges

As capitalist production and circulation develop, the forms of trade,

wholesale and retail, also develop. Wholesale trade is trade between
manufacturers and trading concerns, while retail trade is the sale of
commodities directly to the population.
In trade, as in industry, concentration and centralisation of capital
goes on. Small and medium capitalists are squeezed out by large-scale
ones both in wholesale and in retail trade. In retail trade the
concentration of capital takes place principally in the form of the setting-
up of large stores, both universal a specialised. Universal stores carry on
trade in all kinds of goods, specialised shops trade only in one kind of
goods, e.g., footwear, or clothing.
 The production of identical commodities permits merchants to carry
on wholesale trade by means of samples. Mass homogeneous goods such
as cotton, flax-fibre, metals b ferrous and non-ferrous, rubber, grain,
sugar, coffee, etc., are bought and sold in accordance with fixed
standards and samples on the commodity exchanges.
A commodity exchange is a special kind of market, where trade in
uniform commodities in bulk is carried on and the supply of and demand
for these commodities is concentrated on the scale of entire countries-
often even on the scale of the capitalist world market.

The commodities which are the subject of the deals made between
capitalists on the exchanges do not pass immediately from hand to hand.
The deals are usually made for completion at the end of a period: the
seller undertakes to supply the buyer with a certain quantity of the
commodity at a stated time. For instance, deals are concluded in spring
for supplying cotton from the next harvest, when this cotton has not yet
been sown. In concluding these exchange deals the seller reckons that
the price of the commodity in question will have fallen by the time stated,
so that he will benefit by the difference in price; the buyer reckons that
prices will rise. Often the sellers on the exchange do not possess the
goods they sell and the buyers do not want the goods they buy. Thus
commodity exchanges are places where speculative trade is carried on.
The speculators buy and sell the ownership of goods with which they have
not the slightest connection. Speculation is inseparably linked with the
whole structure of capitalist trade, since this trade has for its aim not the
satisfaction of societys wants but the extraction of profit. It is the large-
scale capitalists, mostly, who make big money in speculative trade. It
leads to the ruin of a considerable section of the small and medium
entrepreneurs.
In bourgeois countries trade is often conducted on credit or on the
instalment plan. This type of trade frequently lead the ordinary consumer
being obliged to pay his debts with his goods and chattels, being unable
to settle with his creditors in due time. Trade on a credit basis is often
used by the capitalists as a means of disposing of inferior goods which
are otherwise unsaleable.

Foreign Trade

As mentioned above, the transition to capitalism was connected with

the creation of a world market. Lenin said that capitalism resulted from

widely developed commodity circulation which goes beyond the

boundaries of the State. For this reason one cannot imagine a capitalist
nation without foreign trade; and there is no such nation. (Lenin,
Development of Capitalism in Russia, Works, Russian edition, vol. III, p.
43.)

In the course of the development of commodity circulation, going

beyond the limits of national markets, capitalist foreign trade is extended.
The extension of world trade in itself expresses the development of the
international division of labour, connected with the growth of the
productive forces. For the capitalists, however, foreign trade serves as a
means of increasing profits. In their hunt for profit the capitalists are
constantly seeking new markets for their goods and sources of raw
material. The limitations of the home market resulting from the
impoverishment of the masses and the seizure of internal sources of raw
material by large-scale capitalists intensifies their striving to establish
supremacy in foreign markets.

Foreign trade was really extensively developed only in the capitalist epoch. During
one hundred years, from 1800 to 1900, the turnover of world trade grew more than
twelve-and-a-half-fold, from 1.5 milliard dollars to 18.9 milliard dollars. During the
following three decades it grew more than three-and-a-half-fold and in 1929 attained
the figure of 68.6 milliard dollars.

Foreign trade is a source of additional profit for the capitalists of the

more developed capitalist countries, since manufactured articles are sold
in backward countries at relatively higher prices, while raw material can
be purchased there at much lower prices. Foreign trade serves as One of
the means of economic enslavement of the backward countries by the
developed bourgeois countries, and of the extension of the spheres of
influence of the capitalist powers.

Thus, for example, the English East India Company plundered India for more than
250 years (1600-1858). As a result of the rapacious exploitation of the local inhabitants
by the East India Company many provinces of India were transformed into wildernesses;
the fields were not cultivated, the land became overgrown with scrub and the population
died off.

Foreign trade is made up of export, i.e., the sending out of

commodities, and import, i.e., the bringing in of commodities. The
relationship between the total of the prices of the commodities exported
by a particular country and the total of the prices of the commodities
imported by it during a certain period, e.g., a year, constitutes the
balance of trade. If the export side exceeds the import side, the balance
of trade is active, while if the opposite is the case it is passive.

A country which has a passive balance of trade must cover its deficit by drawing
upon such sources as stocks of gold, income from transporting the products of other
countries, income from capital investments in other countries, and finally, by means of
foreign, loans.
The trade balance does not show all the forms of economic: relations which exist
between countries. A fuller expression of these relations is given by the balance of
payments. The balance of payments is the relationship between the total of all payments
received by a particular country from other countries and the total of all payments which
this country makes to other countries.

The nature of the economic connections between countries also

determines the foreign-trade policy of capitalist States. In the epoch of
pre-monopoly capitalism two main types of trade policy took shape: the
policy of free trade and the policy of protecting native industry
(protectionism), which was carried out mainly by introducing high
customs dues on foreign goods.

BRIEF CONCLUSIONS
(1) Merchant capital serves the circulation of industrial capital.
Merchants profit is part of surplus-value, which their manufacturer yields
to the merchant.
(2) The exploitation by merchant capital of its wage-workers
enables, it to appropriate part of the surplus-value created in production.
Merchant capital exploits the small commodity producers through non-
equivalent exchange. The workers and other sections of the working
people are exploited by merchant capital as purchasers of consumer
goods.
(3) The outlay connected with maintaining the sphere of circulation
constitutes the costs of circulation. The costs of circulation are made up
of net costs, directly connected with the buying and selling of
commodities, and costs which arise from the continuation of the
production-process into the sphere of circulation. As capitalist trade
develops, unproductive expenditure in the sphere of circulation grows.
(4) Foreign trade arises from an international division of labour.
Under capitalism it serves as one of the methods of economic
enslavement of industrially less developed countries by more developed
industrial capitalist powers.
 CHAPTER XIII

LOAN CAPITAL AND LOAN INTEREST.

CIRCULATION OF MONEY
Loan Capital

Just as commodity capital becomes separated off in the form of

merchant capital, money capital becomes separated off as loan capital.
In the process of the turnover of capital the industrial capitalist finds
himself from time to time with spare capital for which he can discover no
application in his business. For instance, when a capitalist accumulates a
depreciation fund intended for restoring the worn-out parts of his fixed
capital, he temporarily assembles spare sums of money. These sums will
be spent on purchasing new equipment and machinery only after the
lapse of several years. If the manufacturer sells finished products every
month but buys raw material only, once in six months, he has spare
money at his disposal for five months. This is inactive capital, i.e., capital
which is not bringing in any profit.
At other times the capitalist finds himself in need of money, e.g.,
when, though he has not yet managed to dispose of his finished goods,
he needs to buy raw material. At the very moment when one
entrepreneur has a temporary surplus of money capital, another has need
of it. In their hunt for profit the capitalists strive to ensure that each
particle of their capital brings them in income. The capitalist lets out his
spare money on loan, i.e., for temporary use by other capitalists.
Loan capital is money capital which its owner allows another
capitalist to use for a period in return for a definite consideration. The
distinctive feature of loan capital is that it is used in production not by the
capitalist who owns it but by others. When he is able to borrow money,
an industrial capitalist is freed from the necessity of keeping substantial
reserves of money in an inactive state. A loan of money enables a
manufacturer to extend production and increase the number of workers
he employs, and, consequently, to increase the amount of surplus-value
he obtains.
As consideration for the money capital of which he is allowed to
dispose, the manufacturer pays the owner of this capital a certain sum
which is called interest. Interest is the part of his profit which the
industrial capitalist yields to the lending capitalist in return for being
granted a loan by him. Loan capital is capital which brings in interest. The
source of interest is surplus-value.
 The movement of loan capital is wholly based on the movement of industrial
capital. Capital granted on loan is used in production, for the purpose of increasing
surplus-value. Loan capital, therefore, like all capital generally, expresses first and
foremost the production relations between the capitalists and the workers exploited by
them. At the same time loan capital in particular reflects the relations between two
groups of capitalists: on one side the money capitalists and on the other the functioning
capitalists (manufacturers and merchants).
The formula of motion of loan capital is: M-M. Here, not only the stage of
productive capital but also of merchant capital is missing. The impression is created that
the source of income is not surplus-value, produced by exploiting the workers in the
sphere of production, but money by itself. The fact that loan capital brings in income in
the form of interest appears to be as natural a property of money as the bearing of fruit
is of a fruit tree. Here the fetishism characteristic of capitalist relations attains its
farthest limit.

The owner of money capital places his capital for a period at the
disposal of the industrial capitalist, who uses it in production in order to
obtain surplus-value. Thus there arises a separation between the
ownership of capital and its employment in production, a separation
between capital as property and capital as function.

Interest and Profit of Enterprise. The Rate of

Interest and its Tendency to Fall

The manufacturer or merchant surrenders part of his profit to the

money capitalist in the form of interest. Thus, the average profit is broken
down into two parts. The part which remains with the industrialist or
merchant, i.e., the functioning capitalists~ is called the profit of
enterprise.

Just as the form assumed by interest gives rise to a misleading Impression that
interest is a natural product of capital-ownership, so the form assumed by profit of
enterprise gives rise to the illusion that this income is the remuneration of the
functioning capitalist for managing the enterprise and supervising the labour of his
workers. In fact, profit of enterprise, like interest, has no connection with work in the
management of production; it is part of the surplus-value which the capitalists
appropriate without compensation.

The proportion in which the average profit is divided between profit

of enterprise and interest depends on the balance of supply and demand
of loan capital, the state of the market for money capital. The higher the
demand for money capital, the higher, other things being equal, will the
rate of interest be. The rate of interest is the name given to the
relationship between the amount of the interest and that of the money
capital which is lent. In ordinary circumstances, the upper limit of the rate
of interest is the average rate of profit, since interest is a part of profit.
As a rule, the rate of interest is considerably less than the average rate of
profit.
As capitalism develops, the rate of interest displays a tendency to
fall. This tendency results from two causes: first, the operation of the law
of the tendency of the average rate of profit to fall, since the average rate
of profit constitutes the upper limit of the fluctuations of the rate of
interest; secondly, as capitalism develops, the total mass of loan capital
grows faster than the demand for it. One of the causes of the growth of
loan capital is the increase among the bourgeoisie of the group of
rentiers, i.e., capitalists who are owners of money capital and engage in
no activity whatsoever in connection with business. This also reflects the
increase of parasitism in bourgeois society. The growth of loan capital is
facilitated by the centralisation of spare money in banks and savings
banks.

Interest on short-term loans on the U.S. money market ranged in 1866-80 from
3.6 (lowest rate) to 17 (highest rate), in 1881-1900 from 2.63 to 9.75, in 1921-20 from
2.98 to 8, in 1921-35 from 0.75 to 7.81, and in 1945-54 from 0.75 to 2.75.

Forms if Credit. Banks and their operations

Capitalist credit is the form of motion of loan capital. Through the

medium of credit, temporarily spare money capital is transformed into
loan capital. Under capitalism two forms of credit exist: commercial and
bankers.
Commercial credit means the credit which the functioning capitalists
(i.e., the manufacturers and merchants) allow other in connection with
the realising of commodities. The manufacturer, endeavouring to hasten
the turnover of his capital which is in commodity form, supplies
commodities on credit to another manufacturer or wholesale merchant,
and the wholesale merchant in his turn sells the commodities on credit to
the retailer. Commercial credit is used by capitalists in buying and selling
raw material, fuel, equipment, machinery and also consumer goods.
Usually, commercial credit is short-term: it is given for a period not
exceeding a few months. The instrument of commercial credit is the bill of
exchange. A bill of exchange is a debt obligation by which the debtor
undertakes to pay within a definite period of time for the commodities he
has bought. When the time for payment comes round a buyer who has
given a bill of exchange must honour it in cash. Commercial credit
therefore is bound up with trading deals and as a consequence is the
foundation of the capitalist credit system.
Bankers credit means credit granted by money capitalists (bankers)
to the functioning capitalists. Bankers credit, unlike commercial credit, is
not drawn from capital engaged in production or circulation but from idle
and also temporarily spare money capital seeking application. Bankers
credit is granted; by the banks. A bank is a capitalist concern which
trades in money capital and acts as middleman between lenders and
borrowers. The bank, on the one hand, collects spare, inactive capital and
income, and on the other, places money capital at the disposal of the
functioning capitalists-manufacturers and merchants.

The overwhelmingly larger part of the capital at the disposal of the banks is not
their own property and is subject to withdrawal. But at any particular moment only a
fairly small section of the depositors are applying to take out their deposits. In the
majority of cases the withdrawal of money is balanced and exceeded by the inflow of
new deposits. Thee situation is radically altered when any emergency occurs-a crisis or a
war. Then the depositors demand the return of their deposits all at the same time. In
ordinary circumstances a bank need keep in its safes only a comparatively small amount
of money to pay those who want to withdraw their deposits. By far the larger amount of
the deposits is lent out.

Bank operations are divided into passive and active.

Passive operations are those by which the bank draws money into its
safes. The principal means by which these operations are effected is the
receipt of deposits. Deposits are made in various forms: some for a
definite term, others on current account. The latter must be paid out by
the bank on demand, whereas fixed-term deposits may be withdrawn
only after the agreed term has elapsed. Thus, fixed-term deposits are
advantageous to the bank.
Active operations are those by which the bank places and utilises
the means which it has at its disposal. These are, first and foremost, the
granting of money on loan. One of these operations is the discounting of
bills of exchange. A manufacturer who has sold his goods on credit brings
to the bank the bill of exchange he has received from the purchaser, and
the bank forthwith pays out to the manufacturer the sum specified in the
bill of exchange, less a certain percentage. At the conclusion of the period
for which the bill is made out, the drawer of the bill pays not the
manufacturer but the bank. Through this operation commercial credit is
interwoven with bank credit. Also to the category of the banks active
operations belong the granting of loans on various kinds of security:
goods, gilt-edged securities, shipping documents. The bank also makes
direct investments of capital in various enterprises in the form of long-
term credit.
Thus, a banker is a trader in money capital. In its passive operations
the bank pays interest, in its active operations it receives interest. The
bank pays a lower rate of interest on the money lent to it and charges a
higher rate on the loans which it makes itself. The source of the banks
profit is the surplus-value created in production. The banks profit comes
out of the difference between the interest which the bank draws and the
interest which it pays out. Out of this difference the bank covers the
expenses arising from its operations; these expenses are net costs of
circulation. The sum remaining forms the banks profit. The mechanism of
capitalist competition by its own action brings down the level of this profit
to the average rate of profit on capital in general. The labour of the wage-
workers employed in the bank, like the labour of commercial employees
in the realisation of commodities, does not create value and surplus-
value; but enables the banker to appropriate part of the surplus-value
which is created in production. The bank employees are thus subjected to
exploitation by the bankers.
The banks fulfil the function of centres for the settling of accounts.
Each business which deposits money with the bank or is in receipt of a
loan from it has a current account at the bank. The bank pays out money
from current accounts on orders presented in a special form, called
cheques. Thus, the bank acts as cashier for a number of businesses. This
circumstance makes it possible to develop on an extensive scale the
settling of accounts without any actual passing of cash. Capitalist A, who
has sold commodities to capitalist B, receives from him a cheque drawn
on the bank where both of them have current accounts. The bank adjusts
the account, transferring the amount named on the cheque from Bs
current account to As. Concerns have current accounts in different banks.
In the principal centres the banks set up special clearing houses where
cheques drawn on many banks cancel each other out to a considerable
extent. The circulation of cheques and bills of exchange reduces the need
for cash.

Under capitalism there are three main types of bank: commercial banks, mortgage
banks and banks of issue. Commercial banks provide credit for manufacturers and
merchants predominantly by way of using short-term loans. To a large extent this is
done by discounting bills of exchange. This credit is mainly drawn from deposits.
Mortgage banks are concerned with the issue of long-term loans on the security of
real property (landholdings, houses, buildings). The rise and activity of mortgage banks
is closely connected with the development of capitalism in agriculture, with the
exploitation of the peasants by the bankers. To this category of banks also belong the
agricultural banks which grant long-term loans for productive purposes.
Banks of issue have the right to issue money of credit-banknotes. Central banks of
issue playa special role. It is in these banks that the countrys gold reserves are
concentrated. They enjoy the exclusive right to issue banknotes. Central banks do not
usually do business with particular manufacturers or merchants, but make loans to
commercial banks, which in their turn do business with entrepreneurs. Thus, the central
banks of issue are bankers banks.

By concentrating loan and payment transactions, banks help to

speed up the turnover of capital and to lower the costs of monetary
circulation. At the same time, the activity, of the banks facilitates the
centralisation of capital, the squeezing-out of the small and medium
capitalists, the intensification of the exploitation of the workers and the
plundering of the craftsmen and artisans. Mortgage loans ruin the
peasants because the payment of interest on these loans, absorbing as it
does the major part of their incomes, leads to the breakdown of their
economic activity. The paying off of these debts is often effected by way
of selling up the land and other property of the peasants who have fallen
into dependence on the banks.
Concentrating all the money capital of society as they do, and acting
as middlemen for credit, the banks serve as a special kind of apparatus
for the spontaneous distribution of resources between different branches
of the economy. This distribution takes place not in the interest of society
or in accordance with its needs, but in the interests of the capitalists.
Credit facilitates the extension of production, but this extension again and
again encounters the narrow framework of effective demand. Credit and
the banks contribute to the further growth of the socialisation of labour,
but the social character of production comes into ever sharper conflict
with the private, capitalist form of appropriation. Thus, the development
of credit renders the contradictions of the capitalist mode of production
more acute and intensifies its anarchy.

Joint-Stock Companies. Fictitious Capital

 In the capitalist countries of today the overwhelming majority of
large concerns take the form of joint-stock companies. Joint-stock
companies made their appearance as far back as the beginning of the
seventeenth century, but they became very widespread only in the
second half of the nineteenth century.
A joint-stock company is a form of enterprise the capital which
consists of contributions by its members, who own a certain number of
shares, commensurate with the amount of money invested by them. A
share is a security which gives the holder the right to receive part of the
income of the enterprise in accordance with the amount inscribed upon it.
The income received by the shareholder is called a dividend. Shares
are bought and sold at definite prices.

A capitalist who buys shares might have deposited his capital in the bank and
received, say, 5 per cent on it, However, this income does not satisfy him and he prefers
to buy shares. Although this course has some risk attached to it, as against that it offers
him a larger income. Let us suppose that a share capital of ten million dollars is divided
into 20,000 shares, priced at 500 dollars each, and that the business brings in one
million dollars profit. The joint-stock company decides to leave 250,000 dollars of this
amount in reserve and to divide the remaining sum of 750,000 dollars as dividend
amongst the shareholders. In this case each share will bring its owners an income, in the
form of dividend (750,000 dollars divided into 20,000 shares) of 37.5 dollars, which
works out at 7.5 per cent.
Shareholders when they sell their shares try to get a price which, if it were paid
into a bank, would bring them in as loan-interest the same income which they receive as
dividend. If a 500-dollar share brings in 37.S dollars dividend, the holder of such a share
will try to sell it for 750 dollars, so that, when he deposits this amount in a bank which
pays 5 per cent, he will receive the same 37.5 dollars as interest. Purchasers of shares,
however, taking into account the risk involved in investing their capital in a joint-stock
enterprise, endeavour to acquire shares for a smaller sum. The price of shares depends
on the amount of dividend and the level of loan-interest, The price of shares rises with
the rise of dividend or the fall in the interest-rate; conversely; it falls when the dividend
is lowered or the interest-rate raised.

The difference between the total amount of the prices of shares

issued on the foundation of a joint-stock company and the magnitude of
the capital actually invested in the concern, makes up the founders
profit. Founders profit is one of the important means of enrichment of the
large-scale capitalists.

If the capital previously invested in a concern amounts to ten million dollars, and
the total of the prices of the shares issued amounts to fifteen million dollars, then
founders profit in this instance will be five million dollars.
As a result of the transformation of an individual business into a joint-stock
company, capital obtains as it were a two-fold existence. The actual capital invested in
the business to the amount of ten million dollars exists in the form of factory buildings,
machinery, raw materials, stores, finished products, and, finally, of definite amounts of
money kept in the safes belonging to the business or in a current account at the bank.
Alongside real, capital, however, when the joint-stock company is founded,
securities make their appearance-shares, amounting to fifteen million dollars. A share is
only a reflection of capital which really exists in the concern. But at the same time, the
shares have an existence separate from that of the business; they are bought and sold,
the bank issues loans on them, etc.
 From the formal standpoint the supreme authority in a joint-stock
company is the general meeting of shareholders which elects the
governing body, nominates the officials, receives and adopts the accounts
of the business and decides the main questions of the activity of the joint-
stock company.
But the number of votes at a general meeting is allotted in
accordance with the number of shares, as represented by their holders.
For this reason, the joint-stock company is in reality completely in the
grip of a small handful of the biggest shareholders. Since a certain
number of the shares are dispersed among small and medium
shareholders who are not in a position to exercise any influence whatever
on the course of affairs, in practice the big capitalists do not need to
possess even so much as half of the shares to dominate a joint-stock
company. The number of shares which enables one completely to rule the
roost in a joint-stock company, is called the controlling interest.
Thus, the joint-stock company is the form in which big capital
subordinates to itself and utilises for its own ends the resources of the
small and medium capitalists. The widespread extension of joint-stock
companies very greatly facilitates the centralisation of capital and the
enlargement of production.
Capital which exists in the form of securities which bring in an
income to their owners is called fictitious capital. To the category of
fictitious capital belong shares and bonds. A bond is acknowledgment of
debt, issued by a bank, by a business or the State and bringing its bearer
a fixed annual rate of interest.
Securities (shares, bonds, etc.) are bought and sold on stock
exchanges. A stock exchange is a market for securities. The prices at
which securities are being bought and sold at any particular moment are
registered on the stock exchange; deals in securities are made at these
prices outside the exchanges as well (e.g., the banks). The price of
securities depends on the level loan-interest and the amount of
presumable income from the securities. Speculation in securities takes
place on the stock exchange. Inasmuch as all the advantages in the game
of speculation lie with the big and very big capitalists, stock exchange
speculation contributes to the centralisation of capital, enriching the
upper circle of capitalists and ruining the medium and small property-
owners.
The widespread extent of credit and in particular of joint-stock
companies to an ever-increasing extent transforms the capitalist into a
receiver of interest and dividends, while the management of production
passes into the hands of salaried persons-managers and directors. Thus
the parasitic nature of capitalist property becomes ever more marked.

Monetary Circulation in Capitalist Countries

Even before the appearance of capitalism metallic monetary systems

had arisen in which metals played the part of money commodity. Metallic
monetary systems are divided into bimetallic, where the measure of value
and the basis of monetary circulation is furnished by two metals at the
same time, silver and gold, and monometallic, where only one of the two
metals named plays this role. In the early stage of the development of
capitalism (sixteenth to eighteenth centuries), the monetary systems of
many countries were bimetallic. Towards the end of the nineteenth
century nearly all capitalist countries had gone over to monometallism,
with gold as the metal used.
The main features of a system of gold monometallism are: free
minting of gold coins, free exchange of other money tokens for gold
coins, and free movement of gold from country to country. Free minting
of gold coins means the right of private persons to exchange any gold
they have for coins at the mint. At the same time the owners of coins
have the right to transform their coins into ingots of gold. Thus a direct
and very close link is established between gold as a commodity and gold
coins. Under a system like this the amount of money in circulation is
spontaneously brought into keeping with the amount required for the
circulation of commodities. If an excess of money is formed, part of this
leaves the sphere of circulation and is transformed into hoards. If a
shortage of money arises, then these hoards flow out into the sphere of
circulation; money ceases to be hoarded and becomes circulation medium
and means of payment. To meet the requirements of small-scale
turnovers, where a gold-monometallic system prevails coins are issued
which are not of face value, made of a cheaper metal (silver, copper,
etc.).
Gold, the world money, serves as the instrument of international
settlement in commercial and financial transactions. The exchange of the
currency of one country for the currencies of others is carried out in
accordance with a rate of exchange. The rate of exchange means the
price of the monetary unit of one country expressed in the monetary
units of other countries. For example, one pound sterling is equal to such-
and-such a quantity of dollars.
Settlements in foreign trade transactions can also be effected
without transfers of gold or foreign currency. In some cases this can be
done by a clearing settlement, i.e., by the mutual setting-off of debts
incurred through the supply of commodities in bi-lateral trade. In other
cases, settlements between countries may be effected by means of
transfer of bills of exchange from country to country, without the
movement of gold.
With the growth of credit-relations and the development moneys
function as a means of payment credit money made its appearance and
developed widely. Bills of exchange, banknotes and cheques began to
function mainly as means of payment. Although the bill of exchange is not
money, it can serve as a means of payment through the transfer of a bill
of exchange from one capitalist to another.
Banks issue their own bonds, which function as credit money, being
used as medium of circulation and as means of payment. The principal
form of credit money is bank-notes, which banks, issue in exchange for
bills of exchange deposited with them. This means that underlying bank-
notes in the last analysis are; commodity transactions.
 The issue of bank-notes makes it possible to provide circulation
media and means of payment adequate for the growing circulation of
commodities without increasing the amount of metallic money. Under a
gold system of monetary circulation; bank-notes can at any time be
exchanged by the banks for gold or other metallic money. In such
conditions bank-notes circulate on an equal footing with gold coins and
cannot depreciate, since besides the backing of credit they also have al
backing of metal. As capitalism develops, a relative reduction takes place
in the amount of gold which is in circulation. Gold is to an increasing
extent accumulated in the form of reserve funds in the central banks of
issue. The capitalist States took the road of building up gold reserves so
as to strengthen their position in foreign trade, for the conquest of new
markets and in preparing and waging wars. Gold came to be replaced in
circulation by bank-notes and later also by paper money. Whereas at first
bank-notes were, as a rule, exchangeable for gold, later on inconvertible
bank-notes were issued. This has to a considerable extent made bank-
notes similar to paper money.
As already mentioned, paper money arose on the basis of the
development of moneys function as a medium of circulation.
Paper money issued by States as legal tender, are inconvertible into
gold and serve to represent metallic money of full value in its function as
a medium of circulation.
Since the beginning of the first imperialist world war (1914-18) the
majority of capitalist countries have gone over to the system of paper-
money circulation. At the present time gold money is not in circulation in
any country. The ruling classes of capitalist States utilise the issue of
inconvertible banknotes and paper money and the devaluation of
currencies as a means of additional exploitation and plundering of the
working people.
This is seen with particular clarity in the case of inflation. Inflation is
characterised by the presence in the channels of circulation of an
excessive amount of paper money, its devaluation, a rise in the prices of
commodities, a fall in the real wages of manual and clerical workers and
an intensification of the impoverishment of the peasants, with an increase
in the profits of the capitalists and the receipts of the landlords. Bourgeois
States employ inflation as an instrument of economic war against other
countries and conquest of fresh markets. Inflation often enables
exporters to make additional profits, through buying goods in their own
countries with depreciated money at a low rate and selling these goods
abroad for hard currency. At the same time the growth of inflation brings
disorder into economic life and arouses indignation among the masses.
This compels the bourgeois States to carry out monetary reforms in order
to strengthen their monetary systems and stabilise currencies.

The most widespread kind of monetary reform is devaluation. Devaluation is an

official reduction of the rate of exchange of paper money, in relation to the metallic unit
of money, carried out by changing old, depreciated paper money for a smaller quantity
of new money. Thus, in Germany in 1924 the old depreciated money was exchanged for
new, expressed in gold marks, at the rate of one trillion marks for one mark.
In a number of cases devaluation has not been accompanied by exchange of old
paper money for new.

Monetary reforms are carried out in capitalist countries at the

expense of the working people, through increases in taxes and decreases
in wages.

BRIEF CONCLUSIONS
(1) Loan capital is money capital which its owner places temporarily
at a capitalists disposal in return for a consideration in the form of
interest-payments. Interest is a part of the industrial capitalists profit
which he hands over to the owner of loan capital.
(2) Capitalist credit is the form of movement of loan capital. The
main forms of credit are commercial credit and bankers credit. The banks
concentrate the monetary resources of society in their hands and make
them available as money capital to the functioning capitalists-
manufacturers and merchants. The development of credit leads to the
growth of capitalist contradictions. The separation of ownership of capital
from the employment of capital in production graphically reveals the
parasitic character of capitalist property.
(3) A joint-stock company is a form of enterprise the capital of which
consists of contributions by its members, each of whom owns a certain
number of shares corresponding to the amount of money he has
invested. In joint-stock companies big capital subjects to itself and uses
in its own interests the resources of small and medium capitalists. Joint-
stock companies stimulate the centralisation of capital.
(4) As credit develops, the use of credit money becomes widespread-
bank-notes issued by the banks in exchange for bills of exchange. The
ruling classes of capitalist society use the issue of paper money as a
means of intensifying the exploitation of the working people. By inflation
the burden of State expenditure is transferred to the shoulders of the
mass of the people. Monetary reforms are carried out by capitalist States
at the expense of the interests of the working people.
 CHAPTER XIV

GROUND-RENT. AGRARIAN RELATIONS

UNDER CAPITALISM
The Capitalist System of Farming and
Private Property in Land

In bourgeois countries capitalism prevails not only in industry but

also in agriculture. The greater part of the land is concentrated .in the
hands of a class of large landowners. The bulk of agricultural production
for the market is carried on by capitalist enterprises employing wage-
labour. In bourgeois countries, however, the numerically predominant
form of economy in farming remains the petty-commodity-producing
peasant holding.
Two paths of development are most typical of capitalism in
agriculture.
The first path is one in which the old landlord estate is preserved, in
the main, and gradually transformed through reforms into a capitalist
economy. Passing over to capitalist forms of estate-management, the
landlords, in addition to using free, hired labour, also make use of
methods of exploitation derived from serfdom. Servile forms of
dependence by the peasants on the landlords are retained in agriculture,
in such forms as labour-rent, share-cropping, etc. This path of capitalist
evolution in farming was typical for Germany, Tsarist Russia, Italy, Japan
and a number of other countries.
The second path consists of the old landlord estate being broken up
by a bourgeois revolution and agriculture being freed from the shackles of
serfdom: as a result of which the development of the productive forces
takes place more rapidly. Thus, in France the bourgeois revolution of
1789-94 brought feudal landownership to an end. The confiscated lands
of the nobility and clergy were sold off. Small peasant economy came to
predominate in the country, though a considerable part of the land fell
into the hands of the bourgeoisie. In the U.S.A. as a result of the Civil
War of 1861-5 the slave-owners latifundia in the Southern States were
broken up, a large amount of unworked land was sold off cheaply and
agriculture began to develop along the lines of capitalist farming. But
even in these countries, as capitalism developed, large-scale property m
land arose anew on a new, capitalist basis.
As a result of the transformation of pre-capitalist forms of
agriculture, large-scale feudal and petty peasant property in land to an
ever-increasing extent give place to bourgeois landed property. A
continually growing section of the lands of the landlords and the peasants
passes into the hands of the banks, the rural-bourgeoisie, manufacturers,
merchants and money-lenders.

The following figures show how property in land is becoming concentrated. In the
U.S,A. in 1950 76.4 per cent of the farms; possessed only 23 per cent of all the land
area, while in 23.6 per cent of the farms were concentrated 77 per cent of the land. The
largest latifundia, each with more than a thousand acres, which made up 2.3 per cent of
all the farms, possessed 42.6 per cent of the land.
According to census data for 1950, m Great Britain (U.K., excluding Northern
Ireland), 75.9 per cent of the farms embraced only 20.4 per cent of all the agricultural
land, while 24.1 per cent of the farms embraced 79.6 per cent, and of these 2.3 per cent
of the largest farms embraced 34.6 per cent of the land.
In France in 1950 62.1 per cent of the land was in the hands of 20.5 per cent of
the farmers.
In pre-revolutionary Russia a very large amount of land belonged to the landlords,
the Imperial family, the monasteries and the kulaks. The largest landlords, possessing
more than 1,500 acres each, numbered in European Russia at the end of the nineteenth
century about 30,000. They owned 190 million acres of land. At the same time ten and a
half million peasant households, suffering the oppression of semi-serfdom, possessed
only 202 million acres.

Under capitalism a monopoly of private ownership of land by a class

of large landowners prevails. Large landed proprietors usually let out part
of their land on lease to capitalist tenant-farmers and small peasants. The
ownership of land is separated from agricultural production.
Capitalist tenant farmers pay to the owner of the land at definite
intervals, e.g., every year, a rent laid down in the tenancy agreement,
i.e., a sum of money in return for permission to apply their capital to the
piece of land in question. The principal part of the rent is the ground-rent.
Rent includes other elements in addition to ground-rent. Thus, if capital
has previously been invested in a piece of land which is being leased
(e.g., in the form of farm buildings or irrigation works), then the tenant
must pay the landowner, besides the ground-rent, also an annual interest
on this capital. In practice capitalist tenant-farmers often meet part of
their rent by lowering the wages of their workers.
Capitalist ground-rent expresses the relations between three classes
in bourgeois society: wage-workers, capitalists and owners of land. The
surplus-value created by the labour of the wage-workers falls first of all
into the hands of the capitalist tenant-farmer. Part of the surplus-value
remains with the tenant in the form of average profit on capital. Another
part, being the excess over the average profit, the tenant is obliged to
hand over to the landowner as ground-rent. Capitalist ground-rent is that
part of the surplus-value which remains after deduction of the average
rate of profit on the capital invested in the farm, and which is paid to the
owner of the land. Often the landowner, instead of letting out the land on
lease, himself engages workers and runs a farm. In that case both rent
and profit belong to him alone.
It is necessary to distinguish between differential rent and absolute
rent.
 Differential Rent

In agriculture as in industry an entrepreneur will invest his capital in

a certain line of production only if it promises him the average. profit.
Those entrepreneurs who invest their capital under more favourable
conditions of production than others, for example, in more fertile pieces
of land, obtain besides the average profit on their capital also an
additional profit.
In industry, additional profit is obtained by enterprises which
introduce higher technique compared with the average level of technique
in the given branch of industry. Additional profit cannot be a constant
phenomenon in industry. As soon as some technical improvement which
has been introduced in a particular enterprise becomes widespread, the
pioneer enterprise is deprived of its additional profit. In agriculture,
however, additional profit is consolidated for a more or less lengthy
period. The reason for this is that in industry any number of concerns
may be set up, equipped with the most advanced machinery. In
agriculture it is not possible to bring into being any number of pieces of
land, not to speak of better pieces, because the amount of land is limited
and all the land suitable for cultivation is occupied by private owners. The
limited amount of land and the fact that it is occupied by particular
owners gives rise to monopoly of capitalist ownership of land, or
monopoly in land as the subject of economic activity.
Furthermore, in industry the price of production of commodities is
determined by the average conditions of production. The price of
production of agricultural commodities is formed in a different way. The
existence of the monopoly of capitalist ownership of land as a subject of
economic activity leads to the general, regulating price of production (i.e.,
the costs of production plus the average profit) of agricultural products
being determined by the conditions of production which prevail not on the
average but on the worst of the cultivated land, since the production of
the best and medium-quality land is insufficient to meet societys
demands. If the capitalist tenant-farmer who invested his capital in the
worst piece of land did not obtain the average profit, he would withdraw
his capital to another branch of economy.
The capitalists who farm the medium and best pieces of land produce
agricultural commodities more cheaply; in other words, the individual
price of production on their farms is lower than the general price of
production. Making use of the monopoly of land as an object of economic
activity, these capitalists sell their goods at the general price of
production and obtain additional profit, which goes to form differential
rent. Differential rent does not arise because private property in land
exists; it comes into being because of the fact that agricultural which are
grown under varying conditions of labour, are sold at a uniform market
price, conditions of production on the worst lands. The capitalist tenant-
farmers are compelled to pay the differential rent to the landowners,
retaining for themselves the average profit.
Differential rent is the excess profit-over and above the average
profit-obtained by those farms that operate under more favourable
conditions of production; it means the difference between the individual
price of production on the best and medium plots of land and the general
price of production, determined by conditions of production on the worst
plots of land.
This additional profit, like all surplus-value in agriculture, is created
by the labour of the agricultural workers. Differences in the fertility of the
plots of land provide only the conditions for a higher productivity of
labour on the best lands. Under capitalism, however, a misleading
appearance is formed, as though the rent which is appropriated by the
owners of land were a product of the land and not of labour. In fact, the
only source of ground-rent is surplus labour, surplus-value. For a correct
understanding of rent naturally what is needed first and foremost is
recognition that it is obtained not from the soil but from the produce of
agriculture, and so from labour, from the price of the product of labour,
e.g., wheat: from the value of agricultural produce, from labour invested
in the land, and not from the land itself. (K. Marx, Theories of Surplus
Value, Russian edition, 1936, vol. II, Pt. I, p. 221.)
There are two forms of differential rent:
Differential rent I is connected with the difference in the fertility of
the soil and in the location of the pieces of land in relation to markets.
From a more fertile piece a higher yield can be obtained with the
same outlay of capital. Let us take for example three pieces which are
identical in size but different in fertility.

Individual price of General price of Differential

production production rent I
Pieces of Outlay of Average Production in Of all Of one Of one Of all In dollars
land capital in profit in centres production in centner in centner in production in
dollars dollars dollars dollars dollars dollars
I 100 20 4 120 30 30 120 0
II 100 20 5 120 24 30 150 30
III 100 20 6 120 20 30 180 60

The leaseholder of each of these pieces lays out 100 dollars on hire
of workers, purchase of seed, machinery, implements, upkeep of cattle,
and other expenses. The average profit is 20 per cent. Labour applied to
these pieces of varying fertility gives a yield of 4 centners from the first
plot, 5 from the second and 6 from the third.
The individual price of production of the whole mass of products
produced on each piece is the same. It is 120 dollars (costs of production
plus average profit). The individual price of production of a unit of
production differs from one piece to another. A centner of agricultural
produce from the first piece ought to be sold for go dollars and one from
the third for 20 dollars. But since the general price of production in
agricultural commodities is uniform and is determined by the conditions
of production on the worst piece of land, every centner of produce from
all three of the pieces will be sold at 30 dollars. The tenant of the first
(worst) piece will receive for his harvest of 4 centners 120 dollars, i.e.,
the amount equal to his costs of production (100 dollars) plus the
average profit (20 dollars). The tenant of the second piece receives for
his 5 centners 150 dollars. Over and above his costs of production and
the average profit, he receives go dollars of additional profit, which
constitutes the differential rent. Finally, the tenant of the third piece
receives for his 6 centners 180 dollars. Here the differential rent amounts
to 60 dollars.
Differential rent I is also connected with difference in location of
pieces of land. Those farms which are situated nearer to selling outlets
(towns, railway stations, seaports, elevators, etc.) save a considerable
part of the labour and means of production required for transport of
products, compared with farms which are at a greater distance from
these outlets. As they sell their products at the same price as the others,
the farms which are situated near to markets, obtain additional profit,
which forms differential rent, by virtue of their situation.
Differential rent II arises as a result of additional investments of
means of production and labour in one and the same piece of land, i.e.,
when farming is intensified. In contrast to extensive farming, which grows
by extending the arable area of pastures, intensive farming develops by
the introduction of improved machinery and artificial fertilizers, the
carrying out of land- improvement work, the breeding of more productive
strains of cattle, etc. With technique unchanged intensification of
agriculture can be expressed in a greater amount of labour expended on
a given piece of land. All these measures result in the obtaining of
additional profit, which forms differential rent.
Let us come back to our example. On the third piece, the most fertile
one of the three, 100 dollars was expended first of all, and this gave 6
centners of produce: the average profit was 20 dollars, the differential
rent 60 dollars. Let us suppose that, prices remaining as before, a
second, additional and more productive expenditure of 100 dollars of
capital is made on this piece-connected with development of technique,
use of greater quantity of fertilizer, etc. As a result, an additional harvest
of 7 centners is obtained, the average profit on the additional capital
amounts to 20 dollars, and the surplus over the average profit to 90
dollars. This surplus of 90 dollars constitutes differential rent II. So long
as the previously-made tenancy agreement continues in force, the tenant
is paying for this piece a differential rent of 60 dollars, and the excess
over the average profit which he receives from the second,
supplementary expenditure of capital, goes into his pocket. But the land
is leased for a defined period of time. When next the land is leased to a
tenant, the landowner will take into account the profits which have been
achieved by additional expenditure of capital, and will raise the amount of
ground-rent on this piece to go dollars. With these aims in mind landlords
try always to conclude tenancy agreements for short periods only. What
follows from this is that capitalist tenant-farmers are not interested in
making large-scale outlays of capital such as bring results only after a
long interval of time, since the gains produced by these outlays will
eventually be appropriated by the landowners.
Capitalist intensification of agriculture is carried out for the purpose
of obtaining the maximum profit. In their hunt for high profits the
capitalists use the land in rapacious fashion, developing farms of a
narrowly specialised type, with cultivation of some single crop alone.
Thus, in the last quarter of the nineteenth century the land in the
Northern States of the U.S.A. was mainly under grain crops. This brought
in its train destruction of the soil structure, its pulverisation, and the
appearance of black storms of dust.
The production of certain kinds of agricultural crops rather than
others changes with the fluctuation of market prices. This makes it
impossible to introduce on all lands correct crop-rotations, which are the
foundation of a high level of agriculture. Private property in land hinders
the carrying out of large-scale land-improvement and other works which
pay for themselves only over a lapse of years. Capitalism thus obstructs
the introduction of a rational system of agriculture.
All progress in capitalistic agriculture is a progress in the art, not
only of robbing the labourer, but of robbing the soil; all progress in
increasing the fertility of the soil for a given time is a progress towards
ruining the lasting sources of that fertility. (Marx, Capital, Kerr edition,
vol. I, p. 555.)

Capitalisms defenders, in their attempts to conceal the contradictions of capitalist

agriculture and to justify the poverty of the masses, allege that agriculture is subject to
the operation of an eternal, natural law of diminishing returns: each additional
application of labour to land is said to give a poorer result than the previous one.
This fabrication of bourgeois political economy is deduced from the false
assumption that technique in agriculture remains unchanging, that progress in technique
occurs only by way of exception. In reality, however, additional investments of means of
production and labour in one and the same piece of land are associated as a rule W1th
the development of technique, with the introduction of new and improved methods of
agricultural production, which bring about a rise in the productivity of agricultural labour.
The real source of the exhaustion of natural fertility and the degradation of capitalist
agriculture is not the law of diminishing results thought up by bourgeois economists,
but capitalist relations, and above all private property in land, which hold back the
development of the productive forces of agriculture. What in fact increases under
capitalism is not the difficulty of producing agricultural produce but the workers difficulty
in purchasing it, which results from their growing poverty.

Absolute Rent. Price of Land

Besides differential rent the owner of land receives absolute rent.

The existence of this is linked with the existence of the monopoly of
private ownership of land.
When we were examining differential rent we assumed that the
tenant of the worst piece of land, when he sells agricultural produce,
obtains for it only the costs of production plus the average profit, i.e.,
that he does not pay ground-rent. In reality, however, the owner of even
the worst piece does not make it available for cultivation free of charge.
And this means that the market price of agricultural commodities has to
be higher than the price of production on the worst piece of land.
What is the source of this surplus? Under capitalism, agriculture is
much more backward than industry from the technical and economic
standpoint. The organic composition of capital is lower in agriculture than
in industry. Let us assume that the organic composition of capital in
industry is, on the average, 80c+20v. With a rate of surplus-value of 100
per cent, each 100 dollars of capital will produce 20 dollars of surplus-
value, and the price of production will be 120 dollars. The organic
composition of capital in agriculture is, let us say, 60c+40v. For each 100
dollars there is produced in this case 40 dollars of surplus-value, and the
value of agricultural commodities is 140 dollars. The capitalist tenant-
farmer, like the industrial capitalist, receives the average profit on his
capital, equivalent to 20 dollars. In accordance with this, the price of
production of agricultural goods is 120 dollars. Under these conditions the
absolute rent will be (140- 120) 20 dollars. It follows from all this that the
value of agricultural commodities is higher than the general price of
production, and the amount of surplus-value in agriculture is greater than
the average profit. This excess of surplus-value over average profit is the
source of absolute rent.
If there were no private property in land, this surplus would enter
into the general redistribution of surplus-value among the capitalists, and
agricultural products would then be sold at their prices of production. But
private property in land prevents free competition, the flow of capital
from industry into agriculture and the formation of an average profit,
common for both agricultural and industrial enterprises. For this reason
agricultural products are sold at the price which corresponds to their
value, i.e., which is higher. than the general price of production. The
extent to which this difference can be realised and transformed into
absolute rent depends on the level of market prices, which is established
as a result of competition.
The monopoly of private property in land is thus the reason for the
existence of absolute rent, which is paid on every plot of land regardless
of its fertility or its location. Absolute rent is the excess of value over the
general price of production which is created in agriculture in consequence
of its lower organic composition of capital compared with industry and is
appropriated by the landowners thanks to private property in land.
Besides differential and absolute rent another form which exists
under capitalism is monopoly rent. Monopoly rent is additional income
received owing to the price exceeding the value of a commodity produced
in especially favourable natural conditions. Such, for example, is rent
obtained for lands on which it is possible to produce scarce agricultural
crops in restricted quantity (e.g., particularly valuable types of grape,
citrus fruit, etc.), or rent for the use of water in areas where agriculture
depends on irrigation. The commodities which are produced under these
conditions are sold, as a rule, at prices which are above their value, i.e.,
at monopoly prices. Monopoly rent in agriculture is paid at the expense of
the consumer.
The class of large landowners, who have nothing whatsoever to do
with material production, are able thanks to the monopoly of private
ownership of land to make use of the attainments of technical progress in
agriculture for their own enrichment. Ground-rent is the tribute which
society is obliged under capitalism to pay to the large landowners. The
existence of absolute and monopoly rent makes agricultural produce
dearer-both foodstuffs for the workers and raw material for industry. The
existence of differential rent deprives society of all the benefits connected
with the higher productivity of labour on fertile lands. These benefits fall
to the class of landowners and capitalist farmers. Just how burdensome
ground-rent is for society is shown by the fact that in the U.S.A.,
according to figures for 1935-7, it amounted to 26 to 29 per cent of the
price of maize and 26 to 36 per cent of the price of wheat.
Enormous resources are diverted from productive application in
agriculture when land is purchased. If we leave out of account artificial
constructions and improvements, such as farm-buildings, irrigation,
drainage of marshes, or application of fertilizers, the land in itself has no
value, since it is not a product of human labour. Nevertheless, this land
which has no value is under capitalism an article which is bought and sold
and has a price. The explanation of this is that the land has been seized
by the landowners and made their private property.
The price of a piece of land depends on the rent annually receivable
from it and on the rate of interest which the banks pay on deposits. The
price of land is equal to the sum of money which, if it were lodged with
the bank, would produce in the form of interest an income of the same
amount as the rent obtainable from the land in question. Let us suppose
that a piece of land brings in 300 dollars of rent per year and that the
bank pays 4 per cent. In this case the price of the land will
300x100/4=7,500 dollars. Thus, the price of land is capitalised rent. The
price of land is the higher, the higher the amount of rent and the lower
the rate of interest.

As capitalism develops the size of rent increases. This leads to

systematic raising of the price of land. Another reason for the increase in
the price of land is the fall in the rate of interest.

The following figures give an idea of the growth in the price of land. Farm values in
the U.S.A. rose in ten years (from 1900 to 1910) by more than 20 milliard dollars. Of
this sum increased value of implements, buildings, etc., accounted only for 5 milliard
dollars, the remaining 15 milliard dollars coming from the increased price of land. During
the following decade the total price of farms rose by 37 milliard dollars; more than 26
milliard dollars of this was due to the rise in the price of land.

Rent in the Extractive Industries. Rent on Building Lots

Ground-rent is not only found in agriculture. It is received also by

the owners of tracts of land from the depths of which minerals are
extracted (iron ore; coal, petroleum, etc.), and also by the owners of
building lots in towns and industrial centres when dwelling-houses,
industrial or commercial buildings or public offices are erected on them.
Rent in the extractive industries is formed in the same way as
agricultural rent. Mines, pits and oilfields differ in the wealth of their
reserves and the depth of their deposits, and also in their distance from
the market outlets. Capitals of varying size are invested in them. For this
reason the individual price of production of each ton of ore, coal,
petroleum, varies from the general price of production. On the market,
however, each of these commodities is sold at the general price of
production which is determined by the worst conditions of production. The
extra profit which. is thereby received by the best and middling mines,
pits and oil wells forms the differential rent intercepted by the landowner.
Besides this, the landowners take absolute rent from each piece of
land, regardless of the wealth of the minerals contained in the depths.
This consists, as has been mentioned, of the excess of value over the
general price of production. The existence of this excess is explained by
the fact that in the extractive industries the organic composition of capital
is lower than the average for industry, owing to the comparatively low
level of mechanisation and the absence of outlay for the purchase of raw
material. Absolute rent increases the price of ore, coal, petroleum, etc.
Finally, monopoly rent exists in the extractive industries in those
tracts of land from which are extracted those exceptionally rare minerals
which are sold at prices exceeding the value of their output.
The ground-rent drawn by large landowners from mines, pits and oil
wells prevents a rational utilisation of the bowels of the earth. Private
property in land imports a disunited character to the enterprises of the
extractive industry, which obstructs mechanisation and contributes to
making production expensive.
Rent for building lots is paid to a landowner by entrepreneurs leasing
land where dwelling-houses or industrial, commercial or other enterprises
are to be built. The main mass of the ground rent paid in cities consists of
rent from the land on which dwelling-houses stand. Location has an
enormous bearing on the amount of differential rent payable for a
building site. Fort sites which are comparatively near to the city centre
and to the industrial enterprises a higher rent is charged. This is one of
the reasons why, in the big cities of capitalist countries, houses are built
so densely, streets so narrow, etc.)
Besides differential and absolute rent the owners of land in the cities
also draw tribute from society in the form of monopoly rent (they are able
to do this because of the extremely limited amount of land available in
many cities and industrial centres); and this raises house-rent to a very
large extent. In connection with the growth of city populations the owners
of urban land inflate the rent chargeable for building lots, which puts an
obstacle in the way of housing construction. A considerable section of the
working population is compelled to live cooped up in slums. The rising
rent for housing reduces the real wages of the workers.
The monopoly created by private property in land puts a brake on
the development of industry. If he is to build an industrial enterprise, a
capitalist must spend his resources unproductively on buying land or on
paying ground-rent for land which he leases. Ground-rent constitutes a
large item in the expenses of manufacturing industry.

How great is the amount of ground-rent paid for building sites is shown by the fact
that of the total amount-155 million-of the rent annually received by British landlords
in the 1930s, 100 million was ground-rent from urban land. The price of land grows
rapidly in big cities.
 Large-scale and Small-scale Production in Agriculture

The economic laws of development of capitalism are the same for

industry and for agriculture. The concentration of production in
agriculture, as in industry, leads to the ousting of petty economy by
large-scale capitalist economy, which inevitably renders class
contradictions more acute. The defenders of capitalism have an interest in
covering up and concealing this process. Falsifying reality, they have
created a mendacious theory of the stability of small-peasant economy.
According to this theory, small-peasant economy maintains its stability in
the struggle with large-scale economy.
In reality, however, large-scale production in agriculture possesses a
number of decisive advantages compared with small-scale production.
These advantages consist first of all in the fact that it can make use of
costly machines (tractors, combines, etc.) which increase the productivity
of labour many times over. In the conditions of the capitalist mode of
production machine technique is concentrated in the hands of the upper
groups of capitalist farmers, and is beyond the reach of the working
sections of the country population.
It is large-scale production that obtains all the benefits which flow
from capitalist co-operation and division of labour. The principal
advantage possesses, by large-scale production is the high proportion of
its output which is available for the market. Large and very large
agricultural enterprises are responsible for the major part of all the
U.S.A.s marketable agricultural production. Meanwhile the main mass of
the farmers carry on what is in essence a subsistence economy, and what
they produce does not suffice to meet even the vital needs of their
families.

Small peasants property excludes by its very nature the

development of the social powers of production of labour, the social
forms of labour, the social concentration of capitals, cattle raising on
a large scale, and a progressive application of science. (Marx,
Capital, Kerr edition, vol. III, p. 938.)

Nevertheless, the process, characteristic of capitalism, of the growth

of large-scale production and the ousting of small production has certain
special features in agriculture. Large capitalist agricultural enterprises
develop mainly by way of intensifying cultivation. Often a farm which is
small in extent of land is a large-scale capitalist concern in respect of its
gross and marketable output. The concentration of agricultural production
in large-scale capitalist concerns is frequently accompanied by a growth
in the number of very small peasant holdings. The existence of a
considerable number of such very small holdings in highly-developed
capitalist countries is accounted for by the fact that it is in the interests of
the capitalists to preserve a stratum of labourers with tiny allotments so
that they can exploit them.
The development of large-scale capitalist agricultural production
leads to intensified differentiation of the peasantry, and growth in the
enslavement, impoverishment and ruin of millions of small and medium
peasant households.

In Tsarist Russia before the October Revolution the peasant households consisted
of 65 per cent poor peasants, 20 per cent middle peasants and 15 per cent kulaks. In
France the number of owners of land fell from 7-7 million in 1850 to 2.7 million in
1929, though the expropriation of small, parcelled-out peasant holding, while the
numbers of the agricultural proletariat and semi-proletariat reached about 4 million in
1929.

Small-scale economy in agriculture survives at the price of incredible

privations and excessive overwork on the part of the tiller of the soil and
the whole of his family. In spite of the peasants working himself to
exhaustion to save his seeming independence, he loses his land
nevertheless, and is ruined.
Mortgage credit plays a large part in the expropriation the peasantry.
Mortgage credit means loans granted on security of land and real
property. When a farmer who carries on an enterprise on his own land
experiences a need for money to meet payments which cannot be
postponed (e.g., for payment of taxes), he applies to the bank for a loan.
Sometimes loans are granted for the purchase of a piece of land. The
bank advances a certain sum of money on the security of the land. If the
money is not paid back in due time, the land passes into the banks
possession. In fact the bank becomes the true owner of the land even
earlier, for the farmer-debtor is obliged to pay over as interest a
considerable part of the income he derives from the land. The peasant in
fact pays ground-rent to the bank, in the form of interest, for his own
piece of land.

The mortgage-indebtedness of American farmers amounted in 1910 to 3.2 milliard

dollars and in 1940 to 6.6 milliard dollars. According to figures for 1936, interest on
loans absorbed, together with taxes, approximately 45 per cent of the farmers net
income.
Indebtedness to the banks is a real scourge for small production in agriculture. The
number of mortgaged farms in the U.S.A. was in 1890282 per cent of the total and in
1940438 per cent.

Every year a large number of peasant farms are sold by auction. The
ruined farmers are driven from the land. The growth in farm debts
expresses the process separating, the ownership of land from agricultural
production, its concentration in the hands of the large landowners and the
transformation of the independent producer into a tenant or a wage-
worker.
A very large number of small peasants rent little plots of land from
large landowners on extortionate terms. The agricultural bourgeoisie
takes leases of land in order to produce goods for the market and obtain
profit. This is entrepreneur tenancy. The small peasant tenant is
compelled to take a lease of a fragment of land in order to live. This is so-
called food or hunger tenancy. The rent per acre paid for tenancy is
usually much larger in the case of small plots of land than in that of large
ones. A small peasants rent often absorbs not only all his surplus labour
but also part of his necessary labour. Tenancy relations are here
interwoven with survivals of serfdom. The most widespread survival of
feudalism under capitalist conditions is share-cropping, under which the
peasant-leaseholder pays in kind up to half or more of the crops he
harvests as rent for his holding.

In the U.S.A. in 1950, 575 per cent of the farmers owned their land and 26.5 per
cent were tenants. In addition, 15.6 per cent of all farmers were part-owners, i.e.,
were also obliged to hold on lease part of the land they worked. About half the tenants
were share-croppers. Although slavery was officially abolished in the U.S.A. during last
century, certain survivals of slavery continue to exist to this day, especially where Negro
share-croppers are concerned.
France has a considerable number of share-cropper tenants. Besides rent in kind,
which amounts to a half of their crop (and in some cases even more), they are often
obliged to supply the owners of their land with produce from their farmscheese, butter,
eggs, poultry, etc.

Deepening of the Antithesis between Town and Country

A typical feature of the capitalist mode of production is a marked

lagging of agriculture behind industry, a deepening and sharpening of the
antithesis between town and country.

The development of agriculture lags behind that of industry.

This is characteristic of all capitalist countries and is one of the most
important causes of the disproportion in the development of the
different branches of national economy, of crises, and of the high
cost of living. (Lenin, New data on the laws of development of
capitalism in agriculture, Selected Works, 12-vol. edition, vol. XII, p.
274.)

Agriculture under capitalism lags behind industry, first and foremost

in the level of the productive forces. Technique develops in agriculture
slower than in industry. Machinery is used only on the large-scale farms;
the petty commodity production of the peasantry is not in a position to
use it. And the capitalist use of machinery leads to intensified exploitation
and ruin of the small producers. An obstacle to the extensive use of
machinery in agriculture is the cheapness of labour-power, which is
caused by rural overpopulation.
Capitalism has sharply intensified the lagging of the country behind
the town in the sphere of culture. Towns are centres of science and art. In
the towns are concentrated the institutes of higher education, the
museums, the theatres, the cinemas. The benefits of this culture are
utilised mainly by the exploiting classes. The mass of the proletariat is
able only to a very slight extent to share in the achievements of urban
culture. The main mass of the peasant population in capitalist countries is
also cut off from the urban centres and is doomed to cultural
backwardness.
The economic basis of the antithesis between town and country
under capitalism is the exploitation of the country by the town, the
expropriation of the peasantry and the ruining of the majority of the rural
population by the entire course of development of capitalist industry,
trade and credit. The urban bourgeoisie together with the capitalist
farmers and landlords exploit the many millions of peasants. The forms
assumed by this exploitation are various; the industrial bourgeoisie and
the merchants exploit the countryside through high prices for
manufactured commodities and relatively low prices for agricultural
commodities; the banks and usurers exploit it through extortionate terms
of credit; the bourgeois State exploits it by means of all sorts of taxes.
The huge sums appropriated by large landowners through rent-charges.
and the sale of land, and also the resources collected by the banks as
interest on mortgage loans etc., are diverted from the country to the
town to serve the parasitic consumption of the exploiting classes.
Thus the causes of the lagging of agriculture behind industry and the
deepening and sharpening of the antithesis between town and country
are inherent in the very system of capitalism itself.

Private Ownership of Land and Nationalisation of the

Land

As capitalism develops, private property in land becomes more and

more parasitic in character. The class of large landowners grabs in the
form of ground-rent an enormous share of the revenues received from
agriculture. A considerable part of the revenue is withdrawn from
agriculture and falls to the large landowners through the price of land. All
this hinders the development of productive forces and renders agricultural
produce dearer, which imposes a heavy burden upon the shoulders of the
working people. This is why nationalisation of the land has become a
social necessity (Marx, Nationalisation of the land, Marx and Engels,
Works, Russian edition, vol. XIII, Pt. I, p. 341). Nationalisation of the
land means the transformation of private ownership of land into State
ownership.
In showing the need for nationalisation of the land, Lenin proceeded
from the existence of two kinds of monopolymonopoly of private
property in land and monopoly in land as a subject of economic activity.
Nationalisation of the land means abolition of the monopoly of private
ownership of land and the absolute rent connected with it. Abolition of
absolute rent would lead to a fall in the price of agricultural produce. But
differential rent would continue to exist, as it is connected with monopoly
in land as an object of economic activity. In capitalist conditions, a
considerable part of. differential rent would, on the land being
nationalised, be placed at the disposal of the bourgeois State.
Nationalisation of the land would remove a number of obstacles to the
development of capitalism in agriculture created by private property in
land, and would free the peasantry from survivals of feudal serfdom.
The demand for nationalisation of the land was put by the
Communist Party of the Soviet Union as far back as the period of the first
Russian Revolution, 1905-7. Nationalisation of the land meant seizure
without compensation (confiscation) of all the land belonging to landlords
and its transfer to the peasants.
Lenin considered that nationalisation of the land was possible in a
bourgeois-democratic revolution only if a revolutionary democratic
dictatorship of the proletariat and peasantry were set up. Nationalisation
of the land, as a demand of the bourgeois-democratic revolution, has
nothing intrinsically socialist in it. But abolition of landlord ownership of
land strengthens the alliance between the proletariat and the main mass
of the peasantry and clears the field for the class struggle between the
proletariat and the bourgeoisie. Nationalisation of the land thus helps the
proletariat, in alliance with the rural poor, in its struggle to bring about
the development of the bourgeois-democratic revolution into a socialist
revolution.
In developing the Marxist theory of rent, Lenin pointed out that
nationalisation of the land within the framework of bourgeois society was
capable of accomplishment only in periods of bourgeois revolution and
was inconceivable when the class struggle between proletariat and
bourgeoisie is very acute. (Lenin, The Agrarian Programme of the Social
Democrats in the First Russian Revolution, 19D5-07, Selected Works, 12-
vol. edition, vol. XII, p. 329.) In the epoch of developed capitalism, when
the task of carrying through the Socialist revolution is on the order of the
day, nationalisation of the land cannot be realized within the framework of
bourgeois society for the following reasons. First, the bourgeoisie cannot
bring itself to abolish private property in land because it fears that with
the growth of the revolutionary movement of the proletariat this may
shake the foundations of private property in general. Secondly, the
capitalists themselves have acquired landed property. The interests of
the class of bourgeois and the class of landlords become ever more
closely interwoven. They always stand together in the struggle against
the proletariat and the peasantry.
The entire course of the historical development of capitalism
confirms that in bourgeois society the mass of the peasantry, mercilessly
exploited by the capitalists, landlords, usurers and merchants, is doomed
to impoverishment and want. Under capitalism the small peasants cannot
reckon on an improvement in their situation. The class struggle inevitably
grows more acute in the countryside. The basic interests of the main
mass of the peasantry coincide with the interests of the proletariat. This
provides the economic basis for the alliance between the proletariat and
the working peasantry in their common struggle against the capitalist
system.

BRIEF CONCLUSIONS
(1) The characteristic features of the capitalist system of agriculture
are, first, that the predominant share of the land is concentrated in the
hands of large landowners who let the land out on lease; secondly, that
the capitalist tenant-farmers carry on their economic activity on the basis
of exploiting wage-workers; thirdly, the existence of private ownership of
means of production, including land, by a numerous class of small and
middle peasants. Agriculture in bourgeois countries, despite the growth of
capitalism, is still to a substantial degree broken up among small and
middle peasant-proprietors whom the capitalists and landlords exploit.
(2) Capitalist ground-rent is that part of the surplus-value created by
wage-workers in agriculture which constitutes an excess over the average
profit and is paid by the capitalist tenant-farmer to the landowner for the
right to use his land. The existence of capitalist ground-rent is connected
with the presence of monopoly of two kinds. The monopoly of capitalist
economic activity on the land as an object of economic activity is a result
of the limited amount of land, and its employment as separate farms, and
it leads to the price of production of agricultural commodities being
determined by the worst conditions of production. The extra profit
obtained from the best lands or from more productive outlays of capital,
constitutes differential rent. The monopoly of private property in land,
with the low organic composition of capital in agriculture compared with
that in industry, gives rise to absolute rent. With the development of
capitalism, all forms of rent become bigger and the price of land
increases, this being capitalised rent.
(3) In agriculture as in industry, large-scale production, squeezes out
small. Large-scale machine production, however, extends in agriculture
considerably more slowly than in industry, even in the most developed
capitalist countries. At the price of excessive, exhausting labour and
sharp reduction of the standard of life of the small peasant and his family,
a mass of small peasant holdings continue to exist in the capitalist
countries, but are marked by extreme instability.
(4) Capitalism inevitably gives rise to a growing lag of agriculture
behind industry and makes deeper and sharper the antithesis between
town and country. The monopoly of private property in land withdraws
from agriculture in the form of ground-rent and unproductive outlays on
the purchase of land vast resources which go to finance the parasitic
consumption of the landowning class and hinder the development of the
productive forces of agriculture.
(5) The main mass of the peasantry is doomed under capitalism to
suffer ruin and want. The fundamental interests of the proletariat and of
the exploited masses of the peasantry coincide. Only in alliance with the
proletariat and under its leadership, through a revolution which abolishes
the capitalist system, can the working peasantry free itself from
exploitation and poverty.
 CHAPTER XV

THE NATIONAL INCOME

Aggregate Social Product and National Income

The entire mass of material wealth prodl1ced in society over a

definite period, e.g., a year, constitutes the aggregate social product (or
gross product).
Part of the aggregate social product, equivalent to the value of the
constant capital which has been used up; in the course of the process of
reproduction goes to replace the expended means of production. The
cotton which has been worked up in the mill is replaced by an equivalent
amount of cotton from the current years harvest. Fresh masses of coal
and oil take the place of the fuel which has been burnt up. Machines
which have become obsolete are replaced by new ones. The remaining
part of the aggregate social product embodies new value created by the
working class in the process of production.
That part of the aggregate social product in which newly-created
value is incorporated is the national income. The national income in
capitalist society is consequently equivalent to the value of the entire
aggregate social product less the value of the means of production
expended during the year, or, in other words, it is equal to the sum of the
variable capital and the surplus-value. As it exists in kind, the national
income comprises the whole mass of consumer goods which have been
produced together with that part of the means of production produced
which goes to extend production. Thus the national income means, on the
one hand, the total value newly created during the year, and on the other,
a mass of material wealth of various kinds, part of the aggregate social
product in which this newly created value is embodied.
If, for example, in the course of a year commodities are
manufactured in a particular country to the value of go milliard dollars or
marks, and of this value 60 milliards go to replace the means of
production used up during the year, then the national income created
during the year will be 30 milliards.
Under capitalism there are a mass of small producers (peasants and
artisans), whose labour also creates a definite part of the aggregate
social product. For this reason a countrys national income includes also
the value newly created in the given period by the peasants and artisans.
The aggregate social product, and therefore also the national
income, are created by workers employed in the various branches of
material production. This means all those branches in which material
wealth is produced: industry, agriculture, building, transport, etc.
The, national income is not created in the non-productive branches,
to which belong the machinery of State, credit, trade (except for those
operations in this branch which are a continuation of the process of
production into the sphere circulation), medical institutions, places of
entertainment, etc.
In capitalist countries a quite considerable part of the able-bodied
population not only does not take part in producing the social product and
national income, but is not in any way engaged in socially-useful labour.
To this category of persons belong first and foremost the exploiting
classes and their numerous parasitic hangers-on, together with the huge
police, bureaucratic and militaristic apparatus which upholds the system
of capitalist wage-slavery. A great deal of labour-power is expended
without any benefit to society. Thus, enormous unproductive expenditures
of labour are connected with competition and with the unrestrained
speculation and incredibly extravagant advertising which go on.
The anarchy of capitalist production, the devastating economic
crises, and the working of enterprises substantially below capacity sharply
restrict the utilisation of labour-power. Very great masses of the working
people are deprived under capitalism of the opportunity to work. The
number of fully unemployed registered in the towns of the bourgeois
countries in the period 1930 to 1938 was never less than 14 million.
As capitalism develops, the State apparatus becomes more and more
inflated; the number of persons in attendance upon the bourgeoisie
grows, and while the portion of the population engaged in the sphere of
material production is reduced, the proportion of persons engaged in
circulation increases. The army of unemployed grows in size and agrarian
surplus-population becomes more intense. The effect of all this is to limit
very much the growth of the aggregate social product and the national
income in bourgeois society.

In the U,S.A. the proportion of the able-bodied population engaged in branches of

material production was in 1910 43.9 per cent, in 1920 41.5 per cent, In 1930 35.5 per
cent and In 1940 about 34 per cent.
In the U.S.A. the average annual growth of the national income during the last
thirty years of the nineteenth century amounted to 4.7 per cent, in 1900-1919 to 2.8 per
cent, in 1920-38 to 1 per cent and in the years since the Second World War, 1945-54, to
0.7 per cent.

Distribution of the National Income

Each mode of production has its own historically determined forms of

distribution. The distribution of the national income under capitalism is
determined by the fact that ownership of the means of production is
concentrated in the hands of the capitalists and landlords, who exploit the
proletariat and peasantry. The consequence of this is that the national
income is distributed not in the interests of the working people but in
those of the exploiting classes.
Under capitalism the national income created by the workers labour
falls to the disposal, first of all, of the industrial capitalists (including
capitalist entrepreneurs in agriculture). The industrial capitalists, when
they realise the commodities produced, receive the full amount of their
value, including the sum of variable capital and surplus-value. Variable
capital is transformed into the wages which the industrial capitalists pay
to the workers engaged in production. The surplus-value remains in the
hands of the industrial capitalists; from it come the incomes of all the
groups which constitute the exploiting classes. Part of the surplus-value is
transformed into industrial capitalists profit. A certain portion of the
surplus-value is handed over by the industrial capitalists to the merchant
capitalists in the form of merchants profit and to the bankers as interest.
Part of the surplus-value is handed over by the industrial capitalists to the
landowners as ground-rent.
This distribution of the national income between the different classes
of capitalist society can be depicted in the form of a diagram like this (the
figures stand for milliards of dollars or marks, etc.):

Aggregate
social Wages of
product industrial
90 workers
Variable
10
capital
10
National Industrial
Income capitalists
30 profits
10

Replacement of
used-up Merchants profit
constant capital Surplus- 3
60 value
20

Interest
2

Ground rent
5

Involved in this distribution is also that portion of the national

income which is created in the given period by the labour of the peasants
and artisans: part of this is taken by the peasants and artisans
themselves, another part goes to the capitalists, (kulaks, purchasing
agents, merchants, bankers, etc.) and a third part goes to the landlords.
The incomes of the working people are based on their personal
labour and are earned incomes. The source of the incomes received by
the exploiting classes is the labour of the workers, together with that of
the peasants and artisans. The incomes of the capitalists and landlords
are based upon the labour of and are unearned incomes.
The unearned incomes of the exploiting classes are increased still
more in the process of the further distribution of the national income. Part
of the income received by the population, and in the first place of the
working people, is redistributed through the State budget and used in the
interests of the exploiting classes. Thus, part of the income of the
workers and peasants, which finds its way through tax-payments into the
State budget, is then transformed into additional income for the
capitalists and into the income of officials. The burden taxation imposed
by the exploiting classes on the working people grows rapidly.

In Britain at the end of the nineteenth century taxes amounted to 6-7 per cent of
the national income, in 1913 to 11 per cent, in 1924 to 23 per cent, in 1950 to 38
percent; in France at the end of the nineteenth century taxes were 10 per cent of the
national income, in 1913 13 per cent, in 1924 21 per cent and in 1950 29 per cent.

Furthermore, part of the national income is transferred, by way of

payments for, what are called services, to the non-productive branches
(e.g., for use of municipal services, medical aid, places of entertainment,
etc.). As already pointed out, no social product is created in these
branches, nor, consequently, any national income; but the capitalists who
exploit the workers employed in these branches receive part of the
national income created in the branches of material production. From this
income the capitalists who own businesses in the non-productive
branches pay the wages of their workers, meet the material outlay which
they have to find (for premises, equipment, heating, etc.) and take their
profit.
Thus, the payment made for services must replace the costs incurred
by these concerns and ensure the average rate of profit, since otherwise
the capitalists will not employ their capital in these branches. In their
hunt for high profits the capitalists endeavour to inflate payments for
services, which leads to a further fall in the real wages of the workers and
the real incomes of the peasants.
The re-distribution of the national income which takes place through
the budget and also through high payments for services intensifies the
impoverishment of the working people.
As the outcome of this entire process of distribution, the national
income is divided into two parts: (1) the income of the exploiting classes,
and (2) the income of the working people, both those engaged in the
material-production branches and those in the non-productive branches.
The share of the national income taken by the workers and other
working people of town and country who do not exploit the labour of
others amounted in the U.S.A. in 1923 to 54 per cent, while the share
taken by the capitalists was 46 per cent; in Britain in 1924 the share of
the wage-earners was 45 per cent; in Germany in 1929 the working
peoples share was 55 per cent and that of the capitalists 45 per cent. At
the present time in the capitalist countries the working people, who make
up nine-tenths of the population, receive considerably less than half of
the national income, while the exploiting receive considerably more than
half.
The working peoples share of the national income steadily falls,
while that taken by the exploiting classes grows. In the U.S.A., for
example, the working peoples share of the national income amounted in
1870 to 58 per cent, in 1890 to 56 per cent, in 1923 to 54 per cent, in
1951 to approximately 40 per cent.
The national income is used, in the last analysis, for consumption
and accumulation. The way the national income is used in bourgeois
countries is determined by the class nature of capitalism and expresses
the ever-growing parasitism of the exploiting classes.
The share of the national income which goes toward the personal
consumption of the working people, who are the principal productive
force of society, is so low that, as a rule, it does not guarantee them even
the minimum needed for subsistence. A very great number of workers
and working peasants are obliged to deny themselves and their families
necessities, to live wretchedly in hovels and to deprive their children of
education.
A very substantial part of the national income goes toward parasitic
consumption by the capitalists and landowners. Colossal sums are spent
by the capitalists and landowners on buying luxury articles and on
maintaining a numerous crowd of hangers-on.
Under capitalism the share of the national income which goes toward
the extension of production is quite small in comparison with the
possibilities and needs of society. Thus, in the U.S.A. the share of the
national income going to accumulation amounted in the period 1919-28
to approximately 10 per cent; but in the decade 1929 to 1938
accumulation amounted on the average only to 2 per cent of the national
income, while during the years of crisis a certain eating away of fixed
capital took place.
The comparatively small size of accumulation under capitalism is due
to the fact that a considerable part of the national income goes to the
parasitic consumption of the capitalists, to unproductive expenditure.
Thus, the net costs of circulation which are incurred in the upkeep of the
commercial and credit apparatus, the storing of surplus stocks,
advertising, stock exchange speculation, etc., come to huge amounts. In
the U.S.A., during the period between the first and second world wars,
the net costs of circulation absorbed 17- 19 per cent of the national
income.
A continually growing part of the national income under capitalism
goes on war expenditure, the armaments race and the upkeep of the
State apparatus.

On the surface of things in capitalist society, incomes and their sources appear in
distorted, fetishistic form. A misleading appearance comes about, as though capital itself
gave birth to profit and land to rent, while the workers created only the value of their
own wages.
These fetishistic notions underlie the bourgeois theories about the national income.
By means of theories of this kind bourgeois economists endeavour to muddle the
question of the national income in a way which benefits the bourgeoisie. They try to
show that not only the workers and peasants but also the capitalists and landowners,
and such persons as officials, policemen, stockbrokers, clergymen, etc. all have a share
in creating the national income.
Furthermore, bourgeois economists show in a false light the distribution of the
national income. They understate the share of this income which is taken by the
capitalists and landowners. Thus, for example, the incomes of the exploiting classes are
given on the basis of the returns made by the taxpayers themselves, which markedly
understate these incomes; they do not take into account the enormous salaries drawn
by many of the capitalists as directors of joint-stock companies; they do not take into
account the incomes of the rural bourgeoisie, etc. At the same time the incomes of the
working people are artificially exaggerated through including in their ranks the high-
salaried upper officials, managers of businesses, banks, commercial concerns, etc.
Finally, the bourgeois economists distort the real picture of the distribution of
national income by omitting to separate off the expenditure on consumption by the
exploiting classes and the net costs of circulation, by understating the share which goes
to military expenditure and in every possible way concealing the unproductive spending
of a large part of the national income.

The State Budget

The bourgeois State is an organ of the exploiting classes which has

for its purpose to hold the exploited majority of society in subjection and
to assure the interests of the exploiting minority in all spheres of internal
and external policy.
The bourgeois State possesses a ramified apparatus for the fulfilment
of its tasks: army, police, punitive and judicial bodies, intelligence service,
and various instruments for administrative control and ideological
influence over the masses. This machinery is kept up out of the State
Budget. Taxes and loans provide the sources of the money for the State
Budget.
The State Budget is an instrument for the redistribution of part of the
national income in the interests of the exploiting classes. It takes the
form of an annual estimate of State income and expenditure. Marx wrote
that the Budget of the capitalist State is nothing but a class Budget-a
middle class Budget (Marx, L.S.D. or Class Budgets, and Whos Relieved
by Them, in The Peoples Paper, No. 51, April 23, 1853).
The expenditure of the capitalist State is to an overwhelming degree
unproductive.
A very great portion of the resources of the State Budget under
capitalism goes on war and war preparation. With this should be grouped
also expenditure on scientific research in the field of the production and
perfection of new weapons of mass annihilation, and on subversive
activity in other countries. Another large portion of the expenditure of
capitalist States is connected with the maintenance of an apparatus for
holding down the working people.

Contemporary militarism is the result of capitalism; it is the

living manifestation of capitalism in both its forms: as a military
force used by the capitalist States in their external conflicts... and as
a weapon in the hands of the ruling class for the suppression of all
 movements (economic and political) of the proletariat. (Lenin,
Militant Militarism and the Anti-militarist Tactics of the Social
Democrats, Selected Works, 12-vol. edition, vol. IV, p. 325.),

Very considerable sums are spent by the State, especially during

wars and crises, on direct subsidising of capitalist businesses and
guaranteeing them high profits. Frequently the subsidies paid out to
banks and manufacturers have the purpose of saving them from
bankruptcy during crises. By means of State purchases paid for out of the
Budget, milliards of additional profit are pumped into the pockets of the
big capitalists. Expenditure on culture and science, education and public
health takes an insignificant share of the State Budgets of the capitalist
countries. In the U.S.A., for example, more than two-thirds-of the total
Federal Budget has in recent years been spent on war purposes, while
public health, education and housing took less than 4 per cent, of which
less than 1 per cent went on education..
The capitalist State obtains the bulk of its revenue by way of taxes.
In Britain, for example, taxes made up 89 per cent of the total amount of
the Budget in 1938.
Taxes serve, in capitalist conditions, as a form of additional
exploitation of the working people by way of redistribution through the
Budget of part of their incomes for the benefit of the bourgeoisie. Taxes
are called direct if they are assessed on the incomes of particular
persons, and indirect if they are charged on goods sold (chiefly mass
consumption goods) or on services (e.g., cinema and theatre tickets,
tickets for travel on municipal transport, etc.). Indirect taxes raise the
prices of goods and the charges for services. Indirect taxes are in fact
paid by the consumers. The capitalists also transfer to the consumers
part of their direct taxes, if they succeed in raising the price of goods or
services.
The policy of the bourgeois State is directed towards reducing as
much as possible the rate of taxation falling on the exploiting classes. The
capitalists evade paying their taxes by concealing the true amount of
their incomes. The policy of indirect taxation is particularly advantageous
for the propertied classes.

Indirect taxation charged upon articles consumed by the

masses is distinguished by its very great injustice. It casts all its
weight upon the poor, creating a privileged situation for the rich. The
poorer a person is, the larger the share of his income that he pays to
the State in the form of indirect taxes. The masses who own little or
no property make up nine-tenths of the whole population, consume
nine-tenths of all the taxed articles and pay nine-:tenths of the total
amount of indirect taxes. Lenin, Apropos of the Public Estimates,
Works, Russian edition, vol. v, p. 309.)

Consequently the main burden of taxation falls on the working

masses: the manual and clerical workers and the peasants. As mentioned
above, at the present time in the bourgeois countries about a third of the
wages of the manual and clerical workers is drawn into the State Budget
through taxation. High taxes are exacted. from the peasants and intensify
their impoverishment.
Besides taxes, an important item on the revenue side of the Budget
in capitalist States is loans. Most often the bourgeois State resorts to
loans to cover exceptional expenditure, in the first place war expenditure.
A considerable part of the resources which are gathered by way floans
are spent on State purchases of arms and supplies for the armed forces,
which bring large profit to the manufacturers. In the long run loans lead
to further increases in taxation of the working people, to pay interest on
the loans and to pay off the loans themselves. The size of the State debt
grows rapidly in bourgeois countries.

The total amount of State indebtedness throughout, the world grew from 38
milliard francs in 1825 to 250 milliard in 1900, i.e., it was multiplied by 6.6. In the
twentieth century it grew still faster. In the U.S.A. in 1914 the State debt amounted to
1.2 milliard dollars, and in 1938 to 37.2 milliard, i.e., to thirty-one times as much. In
Britain in 1890 24,100,000 was paid out in interest on loans, and in 1953-4
570,400,000. In the U.S.A. in 1940 a milliard dollars were paid in loan interest, and in
1953-46.5 milliard.

One of the sources of revenue for the State Budget under capitalism
is the issue of paper money. Bringing inflation and, rising prices in its
train, the issue of paper money transfers part of the national income to
the bourgeois State at the cost of a lowered standard of living for the
masses.
Thus the State Budget under capitalism serves as an instrument in
the hands of the bourgeois State for additional robbery of the working
people and enrichment of the capitalist class, and enhances the tendency
to unproductiveness and parasitism in the way the national income is
used.

BRIEF CONCLUSIONS
(1) The national income in capitalist society is that part of the
aggregate social product in which newly created value is embodied. The
national income is created in the branches of the economy where material
production takes place, by the labour of the working class together with
that of the peasants and artisans. As it exists in kind, the national income
consists of the whole mass of consumer goods produced and that part of
the means of production which is set aside for extending production.
Under capitalism a considerable section of the able-bodied population not
only does not create national income but does not even take part in
socially-useful work.
(2) The distribution of the national income under capitalism is
effected in the interests of the enrichment of the exploiting classes. The
share taken by the working people in the national income falls while that
taken by the exploiting classes increases.
(3) Under capitalism the national income, created by the working
class, is distributed in the form of wages to the workers, profits to the
capitalists (manufacturers, merchants and owners of loan-capital) and
ground-rent to the landowners. A considerable part of what results from
the labours of the peasants and artisans is also appropriated by the
capitalists and landowners. Through the State Budget and by way of high
charges for services a redistribution of the national income is carried out
which still further impoverishes the working people.
(4) A huge and ever-increasing part of the national income under
capitalism is used unproductively: it is spent on parasitic consumption by
the bourgeoisie, on covering the excessively inflated costs of circulation,
on the upkeep of the State apparatus for holding down the masses and
on the preparation and conduct of predatory wars.
CHAPTER XVI
REPRODUCTION OF SOCIAL CAPITAL
Social Capital. Composition of the Aggregate Social
Product

Capitalist reproduction includes both the direct process of production

and also the process of circulation.
In order that reproduction may take place capital must be able to
complete its rotation unhindered, i.e., to pass from the money form to
the productive form, from the productive form to the commodity form,
from that to the money form, and so on; This applies not only to each
separate capital but also to all the capital which exists in society.
However, the turnovers of individual capitals intermingle, are mutually
conditioned on one another, are their mutual premises, and form
precisely in this interrelation the movement of social capital (Marx,
Capital, Kerr edition, vol. II, p. 407.)
The social capital is the aggregate of individual capitals taken
together in their interdependence and interconnection. Many-sided
connections exist between the separate capitals of the capitalist
enterprises: some concerns supply machinery, raw material and other
means of production to others, while others produce the means of
subsistence bought by the workers and the consumer goods and luxury
articles bought by the capitalists. Each of the individual capitalists is
independent in relation to the others, but at the same time all are linked
together and depend one upon the other. This contradiction shows itself
in the course of the reproduction and circulation of the whole social
capital. The many-sided relations of interconnection and interdependence
which exist between the separate capitalists appear spontaneously as a
result of the anarchy of production which is inherent in capitalism.
In examining the process of reproduction and circulation of the whole
of social capital, we will suppose, so as not to complicate the question,
that the whole of the countrys economy is carried on on capitalist lines
(i.e., that society consists exclusively of capitalists and workers) and that
the whole of the constant capital is used up in the course of a year and its
value completely transferred to the annual product. The aggregate social
product means simply, given this supposition, the social capital (with an
increment in the form of surplus-value) which emerges from the process
of production in the form of commodities.
If production is to be carried on, the social product must go through
a process of circulation. In the process of circulation every part of the
social product first changes its commodity form into monetary form and
then changes from its monetary form into that commodity form which is
necessary for the continuation of production. Realisation of the social
product means this change of form: commodity into money and then
money into a new commodity form.
As shown above, the entire social product is divided in respect of
value into three parts: the first replaces constant capital, the second
replaces variable capital, the third is surplus-value. Thus, the value of the
social product is equivalent to c+v+s. The different parts of which the
social product is composed play different roles in the course of
reproduction. Constant capital must continue to serve the process of
production. Variable capital is transformed into wages, which the workers
spend on consumption. The surplus-value is, under simple reproduction,
entirely consumed by the capitalists and, under extended reproduction, is
partly so consumed and partly spent on the purchase of additional means
of production and on the hire of additional labour-power.
As regards its material form, the entire social product consists of
means of production and consumer goods. Accordingly, the whole of
social production falls into two major subdivisions: the first subdivision (I)
is the production of means of production, and the second subdivision (II)
is the production of consumer goods. Consumer goods in their turn are
divided into necessary means of subsistence, which go to satisfy the
requirements of the working class and the working masses generally, and
luxury articles which are within the means of the exploiting classes only.
Owing to the lowering of their standard of living the working people are
more and more obliged to give up good-quality consumer goods in favour
of poor-quality ones and substitutes. At the same time the luxury and
extravagance of the parasitic classes increase.
The division of the social product according to its material form
predetermines in its turn a different role for different parts of this product
in the course of reproduction. Thus, for example, looms are intended to
be used for the production of cloth and cannot be used for any other
purpose; ready-made clothing, on the other hand, must enter into
personal consumption.
In examining the rotation and turnover of an individual capital it is of
no importance what commodities in particular, in material form (use-
values), are produced in the given enterprise. When we examine the
reproduction and circulation of the whole social capital, however, the
material form of the commodities produced in society takes on essential
importance. For the uninterrupted renewal of the process of production it
is necessary that there shall be available both the appropriate means of
production and consumer goods.
 The question arises, how, in conditions of the anarchy of capitalist
production, does the realisation of the social product take place? Lenin
showed that the solution of the problems of realisation will be found by
analysing the replacement of all parts of the social product in value and in
material form. (Lenin, A Characterisation of Economic Romanticism, F .
L.P.H. edition, p. 56.) It is a matter, then, of how each part of the social
product, in respect of value (constant capital, variable capital and surplus-
value) and in respect of the natural form (means of production, consumer
goods) finds on the market another part of the product to take its place.
When we examine extended reproduction we find that also
connected with it is the question of how the transformation of surplus-
value into capital takes place, i.e., whence come the additional means of
production and consumer goods for the additional workers who are
needed for the extension of production.

Conditions for Realisation in Capitalist Simple

Reproduction

Let us first examine the conditions needed for the realisation of the
social product in capitalist simple reproduction, when the whole of the
surplus-value goes on personal consumption by the capitalists. These
conditions may be illustrated by means of the following example.
Suppose that in the first subdivision, i.e., in the production of means
of production, the value of constant capital, expressed, for example, in
millions of pounds sterling, is equal to 4,000, that of variable capital to
1,000, and that of surplus-value to 1,000. Suppose that in the second
subdivision, i.e., in the production of consumer goods, the value of
constant capital is 2,000, that of variable capital 500 and the surplus 500.
Given these presuppositions the annual social product will consist of the
following parts:

I. 4,000 c + 1,000 v + 1,000 s=6,000.

II. 2,000 c + 500 v + 500 s=3,000.

The value of the whole product which is produced in the first

subdivision and exists in the form of machinery, raw material, equipment,
etc., amounts, then, to 6,000. In order that the process of production
may be renewed, part of this product, equal to 4,000, must be sold to
concerns belonging to the first subdivision for renewal of the constant
capital of this subdivision. The remaining part of the product of the first
subdivision, being the reproduced value of the variable capital (1,000)
and the newly-produced surplus-value (1,000), also existing in the form
of the means of production, is sold to concerns of the second subdivision
in exchange for consumer goods for the personal consumption of the
workers and capitalists of the first subdivision. In their turn the capitalists
of the second subdivision need means of production to the value of 2,000
in order to renew their constant capital.
 The value of the entire product produced in the second sub-division
and existing in the form of consumer goods (bread, meat, clothing,
footwear, etc., and also luxury articles) amounts to 3,000. Part of the
consumer goods produced in the second subdivision, to the value of
2,000, is exchanged for the wages and surplus-value of the first
subdivision; in this way the constant capital of the second subdivision is
renewed. The remaining part of the product of the second subdivision,
being the reproduced value of the variable capital (500) and the newly-
produced surplus (500), is realised within the second subdivision itself for
the personal consumption of the workers and capitalists of this
subdivision.
Consequently in conditions of simple reproduction there are
exchanged between the two subdivisions: (1) the variable capital and
surplus-value of the first subdivision, which must be exchanged into
consumer goods produced in the second sub-division, and (2) the
constant capital of the second subdivision, which must be exchanged into
means of production produced in the first subdivision. The following
equation is a condition for realisation in capitalist simple reproduction:
the variable capital plus the surplus-value of the first subdivision must be
equal to the constant capital of the second subdivision:

I (v+s)=II c.

This condition of simple reproduction can also be expressed in the following image.
The entire mass of goods produced in the course of a year in the first subdivision
enterprises manufacturing means of productionmust be equal i~ value to the mass of
means of production which is consumed during the year in the enterprises of both
subdivisions. The entire mass of commodities produced during a year in the second
subdivision-enterprises manufacturing consumer goods-must be equal in value to the
total of the incomes of the workers and capitalists in both subdivisions.

Conditions for Realisation in Capitalist Extended

Reproduction

Capitalist extended reproduction presupposes accumulation of

capital. Since the capital of each subdivision consists of two parts
constant and variable capitalso also the accumulated part of the
surplus-value is divided into these two parts: one part goes toward the
purchase of additional means of production; the other to the hiring of
additional labour-power. It follows from this that the annual product of
the first subdivision must contain a certain surplus over the quantity of
means of production which is necessary for simple reproduction. In other
words, the total of the variable capital and surplus-value of the first
subdivision must be, greater than the constant capital of the second
subdivision: I (v+s) must be greater than II c. This is the fundamental
condition for capitalist extended reproduction.

Let us examine the conditions for realisation in capitalist extended

reproduction.
 Suppose that in the first subdivision the value of constant capital
equals 4,000, that of variable capital 1,000, and surplus-value 1,000; and
suppose that in the second subdivision the value of constant capital
equals 1,5, that of variable capital 750, and the surplus-value 750. On
these presuppositions the annual social product will consist of the
following parts:

I. 4,000 c + I,OOO v + I,OOO s=6,000

II. 1,500 c + 750 v + 750 s=3,000.

Let us suppose that, in the first subdivision, 500 out of the 1,000 surplus is
accumulated. In accordance with the organic composition of capital in the first
subdivision (4:1) the accumulated part of the surplus-value breaks down like this: 400
goes to increasing the constant capital and 100 to increasing the variable capital. The
additional constant capital (400) exists as part of the product of the first subdivision
itself, in the form of means of production; the additional variable capital must be
obtained by way of exchange from the second subdivision, which, consequently, must
also accumulate. The capitalists of the second subdivision exchange part of their surplus-
value, equal to 100, for means of production and turn these means of production into
additional constant capital. Then, in accordance with the organic composition of capital
in the second subdivision (2:I), the variable capital in this subdivision must grow by 50.
Consequently, in the second subdivision, out of surplus-value equal to 750, 150 will be
allocated to accumulation.
Just as in simple reproduction, the second subdivision must exchange its constant
capital-equal to 1,500-with the first and the first subdivision must exchange with the
second its variable capital, equal to 1,000 and the part of its surplus-value consumed by
the capitalists, equal to 500.

Thus, the first subdivision must exchange:

part of the product reproducing the value of variable capital
1,000
part of the accumulated surplus-value, which is being added
to the variable capital 100
part of the surplus-value, consumed by the capitalists 500
Total 1,600

The second subdivision must exchange:

constant capital
1,500
part of the accumulated surplus-value, which is being
added to the constant capital 100
1,600

Exchange between the two subdivisions can take place only given equality between
these two magnitudes. Thus, the condition for realisation in capitalist extended
reproduction is the following equation: the value of variable capital plus that part of
surplus-value destined for personal consumption by the capitalists plus that part of
accumulated surplus-value which is added to variable capital, in the first subdivision,
must be equal to the value of constant capital plus that part of accumulated surplus-
value added to constant capital, in the second subdivision.

In extended reproduction the total of the variable capital and

surplus-value of the first subdivision must grow more rapidly than the
constant capital of the second subdivision, and the growth of the constant
capital of the first subdivision must to an even greater extent outstrip the
growth of the constant capital of the second subdivision.
In any system of society development of the productive forces is
expressed in the share of social labour devoted to the production of
means of production growing in comparison with the share devoted to the
production of consumer goods. Preferential growth of-the production of
means of production as compared with production of consumer goods is a
law of extended reproduction. Under capitalism a more rapid growth of
the production of means of production compared with the production of
consumer goods is expressed as a more rapid growth of constant capital
compared with variable, i.e., a rise in the organic composition of capital.
In explaining the conditions for realisation in capitalist simple and
extended reproduction, Marx put on one side, for the sake of simplifying
his analysis, the growth of the organic composition of capital. The
diagram of reproduction given by Marx in Capital presupposes an
unchanging organic composition of capital. Lenin developed Marxs theory
of reproduction further and worked out a diagram of extended
reproduction which took into account the growth in the organic
composition of capital. This diagram shows that the production of means
of production for means of production grows faster, then comes the
production of means of production for means of consumption, and the
growth of the production of means of consumption is slowest. (V. I.
Lenin, Concerning the So-called Question of Markets, F.L.P.H. edition,
1954, p. 19.)
Lenins diagram graphically illustrates the operation of the law of
priority growth of the production of means of production in the course of
capitalist extended reproduction. This operation is reflected in the
spontaneous violation of the established proportions between the
branches of production, in the unequal development of various branches,
and in the marked lagging of the consumption of the masses behind the
growth of production, because a rise in the organic composition of capital
inevitably leads to a growth of unemployment and lowering of the
standard of life of the working class.

The Problem of the Market, Contradictions of Capitalist

Reproduction

It is obvious from the foregoing exposition that for the social product
to be realised certain definite relationships (proportions) must exist
between the separate parts of which it is composed and, consequently,
between the branches and elements of production. Under capitalism,
when production is carried on by isolated producers who are guided by
the hunt for profit and who work for a market which is unknown to them,
these proportions cannot but be subject to continual upsets. Extension of
production takes place unequally, so that the old proportions between
branches are constantly being violated and new proportions being
established spontaneously, by way of the flow of capital from some
branches into others. Therefore proportionality between different
branches is accidental, while constant violation of proportionality is the
general rule of capitalist reproduction. Examining the conditions for the
normal course of capitalist simple and extended reproduction, Marx
declared that they become so many causes of abnormal movements
implying the possibility of crises, since a balance is. an accident under the
crude conditions of this production. (Marx, Capital, Kerr edition, vol. II,
p. 578.) In the conditions of anarchy of capitalist production the
realisation of the social product takes place only amidst difficulties and
continual fluctuations, which become ever stronger as capitalism grows.
Of special importance in this connection is the circumstance that the
extension of capitalist production and, therefore, the formation of the
internal market takes place not so much in respect of consumer goods as
in respect of means of production. However, the production of means of
production cannot develop in complete independence of the production of
consumer goods and without any connection with it, for the enterprises
which use these means of production throw on to the market ever-
increasing quantities of commodities for consumption. Thus, in the last
analysis, productive consumption (consumption of the means of
production) is always connected with individual consumption and always
depends on it. But the dimensions of the individual consumption of the
mass of the people are kept in capitalist society within extremely narrow
limits, on account of the operation of the laws of capitalism, which are
responsible for the impoverishment of the working class and the ruin of
the peasantry. For this reason the formation and extension of the internal
market under capitalism not only does not mean extension of
consumption by the masses, it is, on the contrary, combined with a
growth in the poverty of the overwhelming majority of the working
people.
The nature of capitalist reproduction is determined by the basic
economic law of capitalism; by force of which the aim of production is the
extraction of profit on an ever-increasing scale, and the extension of
production serves as a means to the attainment 6f this end, which
inevitably comes up against the narrow framework of capitalist relations.
It was in this sense that Marx wrote of production. for the sake of
production and accumulation for the sake of accumulation as typical of
capitalism. But commodities are produced, in the long run, not for
production but for the satisfaction of the needs of man. Thus inherent in
capitalism is a deep-rooted antagonistic contradiction between production
and consumption.
The contradiction between production and consumption inherent in
capitalism consists in this, that the national wealth grows alongside the
growth in the poverty of the people, the productive forces of society grow
without a corresponding growth in consumption by the people. This
contradiction is one of the forms in which the basic contradiction of
capitalism manifests itselfthe contradiction between the social character
of production and the private-capitalist form of appropriation.
Exposing the servants of the bourgeoisie who slur over the deep
rooted contradictions of capitalist realisation, Lenin emphasises that
 even with an ideally smooth and proportional reproduction and
circulation of the whole social capital, a contradiction is inevitable
between the growth of production and the restricted limits of
consumption. In reality, besides this, the process of realisation
proceeds not with ideally smooth proportionality, but only amidst
difficulties, fluctuations, crises, etc. (Lenin, Once Again on the
Question of the Theory of Realisation, Works, Russian edition, vol.
IV, p. 7 I.)

We must distinguish between the internal market (outlet for

commodities within the country itself) and the external market (outlet for
commodities abroad).
The internal market appears and extends along with the appearance
and growth of commodity production, and especially with the
development of capitalism, which deepens the social division of labour
and breaks up the direct producers into capitalists and workers. As a
result of the social division of labour the number of separate branches of
production grows. The development of some branches extends the
market for the commodities produced by other branches, especially for
raw material, machinery and other means of production. Furthermore,
the differentiation of the petty commodity producers into classes, the
growth in the number of workers and the increase in the profits of the
capitalists lead to an increase in the outlet for consumer goods bought by
them. The level of development of the internal market is the level of
development of capitalism in a country.
The socialisation of labour by capitalism appears first and foremost in
the fact that the fragmentation of petty production units which existed
previously is done away with and the petty local markets become united
into a huge national (and later world) market.
When we examine the process of reproduction and circulation of the
entire social capital the role of the external market is left on one side,
since inclusion of the external market does not affect the substance of the
problem. Bringing in foreign trade only shifts the problem from one
country to a number of countries, but it in no way changes the essence of
the process of realisation. This does not mean, however, that external
markets are not of essential importance for capitalist countries. In their
hunt for profit the capitalists expand production in every way possible,
arid seek more profitable markets, and foreign markets often prove to be
especially profitable.
The contradictions of capitalist realisation manifest themselves in full
force in the periodic economic crises of over-production.

BRIEF CONCLUSIONS
(1) The rotations of individual capitals, taken in their aggregate,
constitute the movement of social capital. The social capital is the
aggregate of individual capitals in their connection one with another.
(2) The aggregate product of capitalist society is divided in respect of
value into constant capital, variable capital and surplus-value, and in
respect of its material form into means of production and consumer
goods. The whole of social production is divided into two subdivisions: the
first subdivision is the production of means of production and the second
is the production of consumer goods. The problem of realisation is the
problem of finding, for each part of the social product by value and by
material form, another part of the product to exchange for it.
(3) In capitalist simple reproduction the condition for realisation is
that the variable capital plus the surplus-value of the first subdivision
must be equal to the constant capital of the second subdivision. In
capitalist extended reproduction the sum of the variable capital and the
surplus-value of the first subdivision must be greater than the constant
capital of the second subdivision. The law of extended reproduction under
any social system is a preferential (more rapid) growth in the production
of means of production compared with the production of consumption
goods.
(4) In the course of its development capitalism creates an internal
market. The growth of production and of the internal market under
capitalism takes Place to a greater extent in respect of means of
production than in respect of consumer goods. In the process of capitalist
reproduction a disproportionality of production, and a contradiction
between production and consumption, reveal themselves which are
inevitable under capitalism, flowing as they do from the fundamental
contradiction of capitalism, the contradiction between the social character
of production and the private capitalist form of appropriation of the
results of production. The contradictions of capitalist reproduction are
most vividly expressed in economic crises of overproduction.
 CHAPTER XVII
ECONOMIC CRISES
The Basis of Capitalist Crises of Overproduction

Starting from the beginning of the nineteenth century, from the time
when large-scale machine industry first arose, the course of capitalist
extended reproduction has been periodically interrupted by economic
crises.
Capitalist crises are crises of overproduction. A crisis shows itself
first of all in the fact that commodities cannot be sold, since they have
been produced in quantities greater than can be bought by the main
consumersthe mass of the peoplewhose purchasing power is confined
under capitalist relations of production within extremely narrow limits.
Surplus goods encumber the warehouses. The capitalists curtail
production and dismiss workers. Hundreds and thousands of enterprises
are closed down. Unemployment increases sharply. A great number of
petty producers are ruined, in both town and country. The lack of outlet
for the goods produced leads to disorganisation of trade. Credit
connections are broken. The capitalists experience an acute shortage of
money for payments. The exchanges crash-the prices of shares, bonds
and other securities fall headlong. A wave of bankruptcies of industrial,
commercial and banking concerns sweeps forward.
Overproduction of commodities during crises is not absolute but
relative. This means that an excess of commodities exists only in relation
to demand effective in terms of money, but not at all in relation to the
actual requirements of society. During crises the working masses suffer
extreme want in respect of elementary necessities, their requirements
are satisfied worse than at any other time. Millions of people starve
because too much grain has been produced, people suffer from cold
because too much coal has been produced. The working people are
deprived of means of livelihood just because they have produced these
means in too great a quantity. Such is the crying contradiction of the
capitalist mode of production, under which, in the words of the French
Utopian Socialist Fourier, plenty becomes the source of poverty and
want.

Upheavals in economic life often occurred under pre-capitalist modes of production,

too. But they were called forth some extraordinary elemental or social calamity: flood,
drought, wars or epidemics sometimes laid waste entire countries, dooming population
to famine and extinction. The radical difference, however, between these economic
upheavals and capitalist crises is that the hunger and want caused by these upheavals
were an outcome of the low level of development of production, the extreme shortage of
products; whereas under capitalism crises are engendered by the growth of production
alongside the wretched standard of living of the masses, by a relative excess of
commodities produced.

As has been shown above (in Chapter IV), the possibility of crises is
inherent even in simple commodity production and circulation. Only under
capitalism, however, do crises become inevitable, for then production
assumes a social character but the product of the socialised labour of
many thousands and millions of workers passes into private appropriation
by the capitalists. The contradiction between the social character of
production and the private, capitalist form of appropriation of the results
of production, which is the fundamental contradiction of capitalism,
furnishes the basis for economic crises of overproduction. Thus the
inevitability of crises is rooted in the system of capitalist economy itself.
The basic contradiction of capitalism shows itself as an antithesis
between the organisation of production in the individual enterprises and
the anarchy of production in society as a whole. In each separate factory
the workers labour is organised and subordinated to the single will of the
employer. But in society as a whole, owing to the supremacy of the
private ownership of the means of production, anarchy of production
reigns and excludes planned development of the economy. Therefore the
complex conditions which are necessary for the realisation of the social
product under capitalist extended reproduction are inevitably broken up.
These violations gradually accumulate until the onset of a crisis, when the
process of realisation falls into complete disorder.
In their hunt for the highest possible profits the capitalists expand
production; improve technique, introduce new machinery and throw vast
masses of commodities on to the market. Acting in the same direction is
the constant tendency of the rate of profit to fall, which arises from the
growth in the organic composition of capital. The employers endeavour to
make up for the fall in the rate of profit by increasing the amount of
profit, through expansion of the scale of production and the quantity of
commodities produced. Thus capitalism has an inherent tendency to
expand production, a tendency towards a huge growth in production
potentialities. But as a result of the impoverishment of the working class
and of the peasantry, the effective demand of the working people is
relatively reduced. In consequence of this the expansion of capitalist
production inevitably encounters the narrow limits of consumption by the
bulk of the population. It ensues from the basic economic law of
capitalism that the aim of capitalist productionthe extraction of profit on
an ever-increasing scaleinevitably comes into contradiction with the
means for attaining this aimthe extension of production. Crisis is that
moment in the course of capitalist extended reproduction when this
contradiction appears in the acute form of overproduction of
commodities, for which no outlet can be found.

The basis of the crisis lies in the contradiction between the

social character of production and the capitalist form of appropriation
of the results of production. An expression of this basic contradiction
of capitalism is the contradiction between the colossal growth of
capitalisms potentialities of production, calculated to yield the
maximum of capitalist profit, and the relative reduction of the
effective demand of the vast masses of the working people whose
standard of living the capitalist always try to keep at the minimum
level (Stalin, Political Report of the Central Committee to the XVIth
Congress of the CPSU(B), Works, vol. XII, pp. 250-1.)

The basic contradiction of capitalism comes to light in the class

antagonism between proletariat and bourgeoisie. Characteristic of
capitalism is the split between the two most important conditions of
production: between the means of production, concentrated in the hands
of the capitalists, and the direct producers, who are deprived of
everything except their labour-power. This split is vividly revealed in the
crises of over-production, when a vicious circle is formed: on the one
hand a surplus of means of production and products, and on the other a
surplus of labour-power, masses of unemployed who are without the
means of existence.,
Crises are the inescapable companions of the capitalist mode of
production. To abolish crises one must abolish capitalism.

Cyclic Character of Capitalist Reproduction

Capitalist crises of overproduction recur at definite intervals of time,

every eight to twelve years. The inevitability of crises is determined by
the general economic laws of the capitalist mode of production, which
operate in all counties taking the capitalist path of development. At the
same time the course of each crisis, the form in which it appears and its
special features, depend also on the concrete conditions of development
of the particular country concerned. Partial crises of over-production,
affecting particular branches of industry, occurred in Britain as far back as
the end of the eighteenth century and the beginning of the nineteenth.
The first industrial crisis which embraced a countrys economy as a whole
broke out in Britain in 1825. In 1836 a crisis began in Britain and then
spread to the. U.S.A. as well. The crisis of 1847-8, which embraced Great
Britain, a number of countries of the European continent and the U.S.A.,
was, in essence, a world crisis. The crisis of 1857 affected the principal
countries of Europe and America. It was followed by the crises of 1866,
1873, 1882 and 1890. The most serious was that of 1873, which marked
the beginning of the transition from pre-monopoly capitalism to monopoly
capitalism. In the twentieth century crises occurred in 1900-3 (this crisis
began in Russia, where it was felt much more strongly than in any other
country), in 1907, 1920-1, 1929-33, 1937-8 and 19489 (in the U.S.A).
The period from the beginning of one crisis to the beginning of
another crisis is called a cycle. A cycle is made up of four phases: crisis,
depression, recovery and boom. The fundamental phase of a cycle is the
crisis, which provides the starting point for a new cycle.
The crisis is that phase of a cycle in which the contradiction between
the growth of the productive potentialities and the relative reduction of
effective demand breaks out in an acute and, destructive form. This
phase of a cycle is characterised by overproduction of commodities which
cannot find outlets, by a sharp fall in prices, by an acute shortage of
means of payment and by stock exchange crashes which bring in their
train mass bankruptcy, a sharp curtailment of production, a growth in
unemployment, and a fall in wages. The fall in the prices of commodities,
unemployment, direct destruction of machinery, equipment and entire
worksall this means a tremendous destruction of societys productive
forces. Through the ruin and collapse of a large number of concerns and
the destruction of part of the productive forces the crisis forcibly adapts,
and that within a very short time, the magnitude of production to the
magnitude of effective demand. The crises are always but momentary
and forcible solutions of the existing contradictions, violent eruptions,
which restore the disturbed equilibrium for a while. (Marx, Capital, Kerr
edition, vol. III, p. 292.)
The depression is the phase of the cycle which comes immediately
after the crisis. This phase of the cycle is characterised by the fact that
industrial production stagnates, prices of commodities are low, trade
proceeds sluggishly, and there is an abundance of spare money capital. In
the depression period the prerequisites are created for the ensuing
recovery and boom. The accumulated stocks of commodities are partly
destroyed and partly sold off at reduced prices. The capitalists endeavour
to find a way out from the stagnant condition of production by reducing
the costs of production. They seek this objective, first, by intensifying in
every way the exploitation of the workers, further reducing wages and
heightening the intensity of labour; second, by re-equipping their works,
renewing their fixed capital, introducing technical improvements, all with
the aim of making production profitable at the low prices which prevail
owing to the crisis. The renewal of fixed capital gives a fillip to the growth
of production in a number of branches. Enterprises which manufacture
equipment receive orders and in their turn create a demand for all kinds
of raw material and other materials. Thus there opens a way out of the
crisis and depression and for transition to recovery.
Recovery is that phase of the cycle during which enterprises revive
from their disturbed condition and proceed to an extension of production.
Gradually the level of production attains Its former height, prices rise,
profits grow. Recovery passes into boom.
 The boom is that phase of the cycle in which production rises above
the highest point attained in the previous cycle, before the crisis. During
a boom new industrial enterprises, railways, etc., are built. Prices rise;
merchants try to buy as many commodities as possible in the expectation
of a further rise in prices, and by so doing stimulate manufacturers to
expand production still further. The banks readily grant advances to
manufacturers and traders. All this makes it possible to extend the scale
of production and trade far beyond the limits of effective demand. In this
way the conditions for the next crisis of overproduction are created.
Before the onset of a crisis production attains its highest level, but
selling possibilities seem to be even greater. Over-production already
exists, but in a hidden form. Speculation pushes up prices and inflates the
demand for commodities to an excessive degree. Goods surpluses pile up.
Credit still further conceals the fact of overproduction: the banks go on
financing industry and trade, artificially sustaining the expansion of
production. When overproduction attains its highest point, the crisis
breaks out. Then the whole cycle is repeated.
Each crisis gives a stimulus to mass renewal of fixed capital.
Endeavouring to restore the profitability of their enterprises by means of
a sharp reduction of prices, the capitalists, besides intensifying the
exploitation of the workers, are obliged to introduce new machinery and
machine-tools, new methods of production. At the expense of intensified
exploitation of the working class, ruin of the small producers, absorption
of many enterprises by their competitors, the large capitalists bring about
new investments of capital. Thus, the way out of the crisis is effected by
the internal forces of the capitalist mode production. But with the
transition to recovery and boom, violations of the conditions of
reproduction, disproportions, contradictions between the growth of
production and the narrow limits of effective demand, inevitably begin to
pile up once more. In consequence, a new crisis of overproduction
inevitably breaks out within a more or less definite space of time. It is
true that the periods in which capital is invested are different in time and
place. But a crisis is always the starting-point of a large amount of new
investment. Therefore it also constitutes, from the point of view of
society, more or less of a new material basis for the next cycle of
turnover. (K. Marx, Capital, Kerr edition, vol. II, p. 211.) In the decisive
branches of large-scale industry the longevity of the basic means of
production, taking into account not only physical but also moral
depreciation, amounts on the average to about ten years. The
inevitability of periodical mass renewal of fixed capital serves as the
material basis for the periodicity of crises, which recur regularly
throughout the history of capitalism.
Every crisis prepares the ground for fresh and still deeper crises, so that
as capitalism develops their destructive force and acuteness becomes
greater and greater.

Agrarian Crises

Capitalist crises of overproduction, which bring in their train

unemployment, a fall in wages, and reduction in the effective demand for
agricultural produce, inevitably give rise to partial or general,
overproduction in the sphere of agriculture. Crises of overproduction in
agriculture are called agrarian crises.
Behind the inevitability of agrarian crises is the same fundamental
contradiction Of capitalism which constitutes the basis of industrial crises.
At the same time, agrarian crises have certain special features: they are
usually more prolonged than industrial crises.

The agrarian crisis of the last quarter of the nineteenth century, which involved the
West-European countries, Russia and eventually also the U$A., began in the first half of
the 1870S and continued in one form or another down to the middle of the 1890s. It
arose because the development of maritime transport and the extension of the network
of railways began to bring to the markets of Europe large quantities of cheaper grain
from America, Russia and India. The production of grain was less costly in America
owing to the opening-up of new and fertile lands there and the availability of free land
which bore no charge of absolute rent. Russia and India could export grain to Western
Europe at low prices because the Russian and Indian peasants, crushed by unbearable
taxes, were obliged to sell their grain very cheaply. The European capitalist tenant-
farmers and peasants could not stand up to this competition, owing to the high rents
exacted from them by the landlords. After the first world war, in the spring of 1920,
owing to the great reduction in the effective demand of the population, an acute
agrarian crisis broke out; it affected the non-European countries (U.S.A., Canada,
Argentina, Australia) with particular violence. Agriculture had not yet recovered from this
crisis when, at the end of 1928, clear signs of a new one made their appearance in
Canada, U.S.A., Brazil and Australia. This crisis embraced the principal countries of the
capitalist world exporting raw materials and foodstuffs. The crisis involved all branches of
agriculture; it became interwoven with the industrial crisis of 1929-33 and continued
down to the beginning of the second world war. After the second world war an agrarian
crisis again broke out in the largest countries exporting agricultural producethe U.S.A.,
Canada, Argentina-and in a number branches of agriculture in the Western European
Countries.

The protracted nature of agrarian crises is due to the following main

causes.
First, the landlords by virtue of the monopoly of private property in
land compel the tenants to go on paying during agrarian crises the same
ground-rent which they agreed to in their tenancy agreement. When the
prices of agriculture commodities fall, the ground-rent is paid at the cost
of a further reduction of the wages of agricultural workers, and also at
cost of the profits of the tenants, sometimes even by drawing the capital
advanced by them. Consequently it becomes extremely hard for them to
emerge from the crisis by introducing technical improvements and
reductions in the costs of production.
Secondly, agriculture under capitalism is a backward branch of the
economy compared with industry. Private ownership of land, survivals of
feudal relations, the necessity of paying absolute and differential rent to
the landlordsall these so many obstacles in the way of a free influx of
capital into agriculture, and hindrances to the development of the
productive forces. The organic composition of capital is lower agriculture
than in industry; fixed capital, the mass-scale renewal of which is the
material basis, of the periodicity industrial crises, plays a very much
smaller role in agriculture than in industry.
 Thirdly, the petty producers (the peasants) strive during crises to
keep up their former level of production, so as at costs to hang on to
their bit of land, whether it be their own property or leased; this they do
at the price of exhausting labour, underfeeding and destructive use of the
soil and cattle. This still further increases the overproduction of
agricultural produce.
Thus the common basis for the protracted character of agrarian
crises is the monopoly of private property in land, the, feudal survivals
connected with this and the extreme backwardness of agriculture in
capitalist countries. The main burden of agrarian crises falls on the bulk of
the peasantry. An agrarian crisis ruins a mass of petty common
producers; breaking up established property relations, it hastens the
differentiation of the peasantry and the development of capitalist
relations in agriculture. At the same time agrarian crises have a
devastating effect on agriculture in the capitalist countries, causing a
diminution in the sown area, a fall in the level agricultural technique, and
a lowering of agricultural crops and of the productivity of stockbreeding.
Crises and the Sharpening of the Contradictions of
Capitalism

Economic crises in which all the contradictions of the capitalist mode

of production violently explode, inevitably lead to a further deepening and
sharpening of these contradictions.
As a rule, capitalist crises of overproduction are universal in
character. Beginning in a particular branch of production, they rapidly
embrace the entire national economy. Arising first in one country or a few
countries, they spread over the whole capitalist world.
Every crisis leads to a sharp decline in production, a fall in the
wholesale prices of commodities and in the price of shares on the
exchanges a decline in the volume of both domestic and external trade.
The scale of production falls to a level which prevailed a number of years
previously. In the nineteenth century the level of the economic life of
capitalist countries was thrown back during crises by three to five years,
in the twentieth century by decades.

The output of coal in the U.S.A. fell during the crisis of 1873 by 9.1 per cent,
during that of 1882 by 7.5 per cent, during that of 1893 by 6.4 per cent, during that of
1907 by 13.4 per cent, during that of 1920-1 by 27.5 per cent and during that of 1929-
33 by 40.9 per cent. The production of pig-iron in the U.S.A. fell by the following
amounts during the crises indicated: 187327 per cent, 188212.5 per cent, 1893
27.3 per cent, 190738.2 per cent, 1920-154.8 per cent, 1929-3379.4 per cent.
In Germany the total volume of industrial production fell during the crisis of 1873
by 6.1 per cent, 18903.4 per cent, 19076.5 per cent, and 1929-3340.1 per cent.
In Russia during the crisis of 1900-03 the smelting of iron declined by 17 per cent
the output of oil by 10 per cent, the rolling of rails by 30 per cent, and the production of
sugar by 19 per cent.
The crisis of 1857 threw the U.S.A. back two years in output of coal, four years in
production of pig-iron, two years in exports and three years in imports. The crisis of
1929 threw the U.S.A, back 28 years in output of coal, 36 years in output of pig-iron, 31
years in outputs of steel, 35 years in exports and 31 years in imports. Britain was
thrown back by the 1929 crisis 35 years in coal output, 76 years in pig-iron output, 23
years in steel output and 36 years in external trade.

Economic crises vividly reveal the predatory character of capitalism.

During every crisis, while millions of people are in extreme want, doomed
to poverty and hunger, vast quantities of commodities are destroyed
because they cannot find a marketwheat, potatoes, milk, cattle, cotton.
Whole factories, shipyards, blast-furnaces are closed down or sold for
scrap, grain crops and technical crops are destroyed and plantations of
fruit trees are cut down.

During three years of the 1929-33 crisis 92 blast-furnaces were pulled down in the
U.S.A., 72 in Britain, 28 in Germany and 10 in France. The tonnage of sea-going vessels
destroyed in those years amounted to more than 6 million registered tons.
The destructive effect of agrarian crises is clear from the following figures. In the
U.S.A. between 1926 and 1937 more than two million farms were compulsorily sold for
debt. The revenue from agriculture shrank from 6.8 milliard dollars in 1929 to 2.4
milliard dollars in 1932. During the same period sales of agricultural machinery and
equipment were reduced from 458 million dollars a year to 65 million (one-seventh), and
the demand for artificial fertilisers fell by nearly a half The U.S. Government took all
kinds of steps to reduce agricultural production. In 1933 10.4 million acres of cotton
crop were destroyed by ploughing over, 6.4 million pigs were bought and destroyed by
the State, and wheat was burned in the fire-boxes of locomotives. In Brazil about 22
million sacks of coffee were destroyed, and in Denmark 117 thousand head of cattle.

Crises cause incalculable sufferings to the working class, the bulk of

the peasantry and the working people as a whole. They bring about mass
unemployment, which condemns hundreds of thousands and millions of
people to enforced idleness, poverty and hunger. The capitalists make use
of unemployment to intensify in every way the exploitation of the working
class, and sharply to reduce the standard of living of all the working
people.

The number of workers employed in manufacturing industry in the U.S.A. fell by

11.8 per cent at the time of the 1907 crisis. During the 1929-33 crisis the number of
workers in Americas manufacturing industry decreased by 38.8 per cent, and the total
wages bill fell by 57.7 per cent. According to American statisticians, 43 million man-
years were lost between 1929 and 1938 as a result of unemployment.

Crises enormously increase the insecurity of the working peoples

lives, their fear of the morrow. Through spending years out of work,
workers lose their skill, and after the crisis has ended many of them
cannot return to industry any more. The housing conditions of the
working people are greatly worsened; the number of homeless people
wandering about the country in search of work increases. During crises
the number of suicides caused by desperation rises markedly, and
destitution and crime increase.
Crises lead to a sharpening of class contradictions between the
proletariat and the bourgeoisie, between the bulk of the peasantry and
the landlords, usurers and kulaks who exploit them. During a crisis the
working class is deprived of many of the achievements which it has won
through long and hard struggle against the exploiters and the bourgeois
State. This shows the workers that the only way to salvation from want
and hunger lies through abolishing capitalist wage slavery. The broadest
masses of the proletariat, doomed by crises to tremendous privations,
acquire class consciousness and revolutionary determination. The inability
of the bourgeoisie to control the productive forces of society undermines
the faith of the petty-bourgeois strata of the population in the enduring
nature of the capitalist order. All this leads to a sharpening of the class
struggle in capitalist society.
The bourgeois State renders aid to the capitalists during crises in the
form of subsidies, the cost of which is paid in the long run by the working
masses. Using its apparatus of coercion and compulsion, the State helps
the capitalists to wage an offensive against the standard of living of the
working class and the peasantry. All this intensifies the impoverishment of
the working masses. At the same time, crises reveal the complete
incapacity of the bourgeois State to curb to any degree the elemental
laws of capitalism. In capitalist countries it is not the State that controls
the economy but, on the contrary, the State itself is in the power of
capitalist economy, in subjection to big capital.
Crises are the clearest indication that the productive forces brought
into being by capitalism have outgrown the framework of bourgeois
production relations, so that the latter have become a brake on the
further growth of the productive forces.

The crisis shows that present-day society could produce an

incomparably greater quantity of products, which could go to
improve the lives of all the working people, if only the land, the
factories, the machines, etc., were not in the grip of a handful of
private owners who draw millions from die poverty of the people.
(Lenin, Lessons of the Crisis, Works, Russian edition, vol. v, p. 76.).

Every crisis brings nearer the downfall of the capitalist mode of

production.
Inasmuch as crises exhibit with particular clarity and sharpness the
insoluble contradictions of capitalism, testifying to the inevitability of its
doom, bourgeois economists try in every way possible to conceal the true
nature and causes of crises. Endeavouring to gloss over the inevitability
of crises under capitalism, they usually explain crises as resulting from
accidental causes which they claim could be eliminated while maintaining
the capitalist system of economy intact.
With this purpose, the economists of the bourgeoisie proclaim the
ultimate, cause of crises to be either a violation in the proportionality
between branches of production or the lagging of consumption behind
production, and they propose as a means of curing capitalism of crises
that such types of consumption be guaranteed as armaments drives
and wars. In fact, neither disproportionality of production nor the
contradiction between production and consumption are accidental defects
of the capitalist mode of production, but inevitable ways in which the
basic contradiction of capitalism manifests itself, the contradiction which
cannot be eliminated while capitalism exists. Certain bourgeois
economists have gone so far as to declare that crises are caused by sun-
spots, on the grounds that these exert an influence on the harvest and so
on the whole of economic life.
In the intervals between crises the defenders of the bourgeoisie
usually come out with sweeping statements to the effect that crises are
no more and capitalism has taken the road of crisis-free development;
the very next crisis shows up the mistakenness of such statements. Life
invariably reveals the complete bankruptcy of such prescriptions for
curing capitalism of crises.

The Historical Tendency of Capitalist Development.

The Proletariat as the Grave-digger of Capitalism

After capitalism had become the dominant system, the concentration

of property in a few hands advanced with giant strides. The development
of capitalism leads to the run of the petty producers, who fall into the
ranks of the army of wage-workers. Along with this, the competitive
struggle among the capitalists becomes acute, as a result of which one
capitalist lays low many others. The concentration of capital means
concentration of enormous wealth in the hands of an ever narrower circle
of persons.
In developing large-scale production, capitalism gives birth to its own
grave-digger in the person of the working class, which comes forward to
assume the role of guide and leader of all the working and exploited
masses. The development of industry is accompanied by the growth of
the proletariat, in numbers, solidarity, consciousness and degree of
organisation. The proletariat advances ever more resolutely in struggle
against capital. The development of capitalist society, which is
accompanied by a sharpening of the. antagonistic contradictions inherent
within it and by an intensification of class struggle, prepares the
conditions necessary for the victory of the proletariat over the
bourgeoisie.
The theoretical expression of the fundamental interests of the
working class is Marxismscientific socialismwhich is an integral,
harmonious outlook on the world. Scientific socialism teaches the
proletariat to unite for class struggle against the bourgeoisie. The class
interests of the proletariat coincide with the interests of the progressive
development of human society, they merge with the interests of the
overwhelming majority of society, for the revolution of the proletariat
means the abolition not of this or that form of exploitation but of all
exploitation in general.
While at the dawn of capitalism a few usurpers in the shape of the
capitalists and landlords expropriated the masses of the people, the
development of capitalism leads inevitably to the expropriation of the
usurpers by the masses of the people. This task is carried out by the
socialist revolution, which socialises the means of production and sweeps
away capitalism along with its crises, unemployment and poverty of the
masses.
 The monopoly of capital becomes a fetter upon the mode of
production which has sprung up and flourished along with and under
it. Centralisation of the means of production and socialisation of
labour at last reach a point where they become incompatible with
their capitalist integument. This integument is burst asunder. The
knell of capitalist property sounds. The expropriators are
expropriated. (Marx, Capital, Kerr edition, vol. I, p. 837.)

Such is the historical tendency of development of the capitalist mode

of production.

BRIEF CONCLUSIONS
(1) Economic crises are crises of overproduction. Underlying crises is
the contradiction between the social character of production and the
private capitalist form of appropriation of the products of labour. The
forms in which this contradiction is expressed are, first, the antithesis
between the organisation of production within the individual capitalist
enterprises and the anarchy of production in society as a whole, and,
second, the contradiction between the huge growth in the productive
potentialities of capitalism and the relative reduction in the purchasing
capacity of the working masses. The basic contradiction of capitalism
shows itself in the class antagonism between the proletariat and the
bourgeoisie.,
(2) The period from the beginning of one crisis to the beginning of
another is called a cycle. A cycle consists of the following phases: crises,
depression, recovery, boom. The material foundation of the periodicity of
capitalist crises is the necessity for periodical renewal of fixed capital.
Interwoven with industrial crises are agrarian crises, which are
distinguished by their protracted character owing to the monopoly of
private property in land, the existence of feudal survivals and the
backwardness of agriculture under capitalism.
(3) Capitalist crises mean destruction of the productive forces on a
gigantic scale. They bring with them incalculable sufferings for the
working masses. It is in crises that there is most clearly revealed the
historically-limited character of the bourgeois system, the inability of
capitalism to control any further the productive forces which have
matured within its womb. In order to abolish crises it is necessary abolish
capitalism.
(4) The historical tendency of capitalist development is, on the one
hand, that it develops the productive forces and socialises production,
thus creating the material prerequisites for Socialism, and, on the other
hand, that i gives birth to its own grave-digger in the person of the
proletariat, which organises and heads the revolutionary struggle of all
the working people for liberation from the yoke of capital.
 Part Two

B. MONOPOLY CAPITALISM-
IMPERIALISM
 CHAPTER XVIII

IMPERIALISM-THE HIGHEST STAGE OF

CAPITALISM. THE BASIC ECONOMIC LAW OF
MONOPOLY CAPITALISM
The Transition to Imperialism

Pre-monopoly capitalism, with free competition predominating, attained

the apex of its development in the 1860s and 1870s. During the last third of
the nineteenth century there took place the transition from pre-monopoly to
monopoly capitalism. Monopoly capitalism finally took shape towards the end
of the nineteenth and the beginning of the twentieth centuries.
Monopoly capitalism, or imperialism, is the highest and last stage of
capitalism, with the replacement of free competition by the dominance of
monopolies as its fundamental distinguishing feature.
The transition from pre-monopoly capitalism to monopoly capitalism
(imperialism) was prepared by the entire process of development of the
productive forces and relations of production in bourgeois society.
The last third of the nineteenth century was marked by large-scale
technical advances and by the growth and concentration of industry. In
metallurgy, new methods of smelting steel were introduced widely (Bessemer,
Thomas Martin). A rapid spread of new types of prime moverthe dynamo, the
internal combustion engine, the steam turbine, the electric motoraccelerated
the development of industry and transport. The progress made in science and
technique made possible the production of electric power on a mass scale in
fuel-burning power stations and later in large hydro-electric stations. The use
of electric power led to the creation of a number of new branches of the
chemical industry and of metallurgy. The use of chemical methods was
extended in a number of branches and processes of production. Improvements
in the internal combustion engine made possible the appearance and spread of
motor transport and later of aviation.
In the middle of the nineteenth century the predominant place in the
industry of the capitalist countries was still occupied, by light industry.
Numerous enterprises of comparatively small size belonged to individual
owners and the relative importance of joint-stock companies was
comparatively slight. The economic crisis of 1873 brought about the collapse of
many businesses of this kind and gave a strong fillip to the concentration and
centralisation of capital. The predominant role in the industry of the main
capitalist countries now began to be played by heavy industryabove all,
metallurgy and engineering, and also the mining industry, for the development
of which enormous amount of capital were needed. The spread of joint-stock
companies on a wide scale still further increased the centralisation of capital.

The volume of world industrial production grew threefold between 1870 and 1900.
World smelting of steel grew from 0.5 million tons in 1870 to 28 million tons in 1900, and
world smelting of pig-iron from 12.2 million tons to 40.7 million. The development of power
engineering, metallurgy and chemistry led to a growth in the world output of coal (from 218
million tons in 1870 to 769 million in 1900); and of petroleum (from 0,8 million tons to 20
million tons). The growth of industrial production was closely connected with the development
of railway transport. In 1835, ten years after the construction of the first railway, there were
1,500 miles of railway track in the world; in 1870 there were over 125,000, and in 1900
500,000. Maritime routes came to be served by large vessels driven by steam-operated
machinery and internal combustion engines.

During the nineteenth century the capitalist mode of production spread

rapidly throughout the world. At the beginning of the 1870s the oldest
bourgeois country, Britain, still produced more cloth, smelted more pig-iron
and mined more coal than the U.S.A., Germany, France, Italy, Russia and Japan
taken together. Britain held the leading place in world industrial production and
an undivided monopoly of the world market. Towards the end of the nineteenth
century the situation underwent a marked change. In the younger capitalist
countries large-scale, industries of their own had grown up. Owing to this,
Britain lost her industrial leadership and her monopoly position on the world
market. In respect of volume of industrial production the U.S.A. took first place
in the world, and Germany first place in Europe. Russia was moving rapidly
along the path of industrial development, though this was hindered by the
numerous survivals of serfdom in the countrys economic and social system
and by the Tsarist regime, which was rotten through and through.
As the transition to imperialism took place the contradictions between the
productive forces and the production relations of capitalism came to assume
ever more acute forms. The subjection of production to the capitalists hunt for
the highest possible profit created very many barriers to the development of
the productive forces. Economic crises of overproduction began to recur more
frequently, their destructive force increased, and the army of unemployed
became more numerous. Alongside the growth of poverty and misery among
the working masses of town and country there took place an unprecedented
increase in the wealth concentrated in the hands of a small group of exploiters.
The sharpening of the irreconcilable class contradictions between the
bourgeoisie and the proletariat led to intensification of the economic and
political struggle of the working class.
During the period of transition to imperialism the largest capitalist Powers
of Europe and, America made themselves masters of huge colonial possessions
by force and fraud. The ruling circles of the capitalistically developed countries
transformed the majority of the inhabitants of the globe into colonial slaves
who hated their oppressors and struggled against them. Colonial conquests
enormously extended the field for capitalist exploitation; at the same time the
degree of exploitation of the working masses steadily grew. The extreme
sharpening of the contradictions of capitalism found expression in devastating
imperialist wars, which carried off a host of human lives and destroyed a vast
quantity of material wealth.
The historical credit for having undertaken a Marxist analysis of
imperialism as the highest stage of capitalism, and at the same time as the eve
of the socialist revolution of the proletariat, belongs to V. I. Lenin. In his classic
work Imperialism, the Highest Stage if Capitalism, and in a number of other
works, mostly written during the first world war, Lenin summed up the
development of world capitalism in the half-century which had elapsed since
Marxs Capital appeared. Basing himself on the laws, discovered by Marx and
Engels, of the rise, development and decline of capitalism, Lenin gave an
exhaustive scientific analysis of the economic and political essence of
imperialism, its laws and its insoluble contradictions.
In Lenins classic definition, the fundamental economic features of
imperialism are the following:

(1) The concentration of production and capital developed to such

a high stage that it created monopolies which play a decisive role in
economic life; (2) the merging of bank capital with industrial capital and
the creation, on the basis of this finance capital, of a financial oligarchy;
(3) the export of capital, which has become extremely important, as
distinguished from the export of commodities; (4) the formation of
international capitalist monopolies, which share the world among
themselves; and (5) the territorial division of the whole world among the
greatest capitalist Powers is completed. (Lenin, Imperialism, the
Highest Stage of Capitalism, Selected Works, 1950, English edition, vol.
I, Pt. 2, p.525.)

Concentration of Production and Monopolies. Monopolies

and Competition.

Free competition, which prevailed in the pre-monopoly stage of

capitalism, brought about a rapid process of concentration of production in ever
larger enterprises. The operation of the law of concentration and centralisation
of capital inevitably led to the victory of large and very large enterprises, as
compared with which the small and medium enterprises came to play an ever
more subordinate role. In its turn the concentration of production prepared the
transition from the dominance of free competition to that of monopolies which
abolished freedom of competition and at the same time made the competitive
struggle in the capitalist world especially fierce and devastating.

In Germany, there were concentrated in enterprises with more than fifty workers each,
in 1882 22 per cent of all manual and clerical workers, in 1895 30 per cent, in 1907 37 per
cent, in 1925 47.2 per cent, and in 1939 49.9 per cent. The share of the largest enterprises
(those employing more than a thousand) in the whole of industry grew from 1907 to 1925 as
follows: in terms of the numbers employed from 9.6 per cent to 13.3 percent and in horse-
power, from 32 per cent to 41 per cent.
In 1952 in Western Germany 84.6 per cent of all workers were concentrated in
enterprises with 50 or more workers and of these, 3411 per cent were in the largest
enterprises, with 1,000 and upwards in employment.
In the U.S.A. in 1904 the largest enterprises, those with production valued at a million
dollars or over, made up 0.9 per cent of the total number of enterprises; in these enterprises
25.6 per cent of the total number of workers were employed and they contributed 38 per cent
of the entire gross output of industry. In 1909 the largest enterprises, representing 1.1 per
cent of the total, employed 30.5 per cent of all workers in industry and provided 43.8 per cent
of the entire gross industrial output. In 1939 the largest enterprises, making up 5.2 per cent of
the total number, concentrated 55 per cent of all the workers employed and 67.5 per cent of
the entire gross output of industry. A still narrower group of gigantic industrial corporations,
each with assets amounting to more than 100 million dollars, produced in 1954 47 per cent of
the total amount of industrial production and received 63 per cent of the total volume of
profits. In France in 1952 more than 48 per cent of the total wage bill was paid by very large
enterprises numbering only 0.5 per cent of the total number.
Russias industry was marked by a high degree of concentration. In Russia in 1879 large
enterprises (with more than 100 workers each) comprised 4.4 per cent of the total and in them
was concentrated 54.8 per cent of the total production. In 1903 76.6 per cent of all the
industrial workers were concentrated in large enterprises, and they were responsible for the
overwhelming bulk of industrial production.
Concentration of production takes place most quickly in heavy industry and in new
branches of industry (chemical, electrical engineering, automobile, etc.) and lags behind in
light industry, in which in every capitalist country there are many small and medium
enterprises.

One of the forms of concentration of production is combination, i.e., the

uniting in one enterprise of various forms of production which constitute either
consecutive stages in the working up of a raw material (e.g., metallurgical
combines, which unite the mining of the ore, the smelting of the pig-iron, the
conversion of the iron into steel and the manufacture of rolled articles), or
which are auxiliary to one another (e.g., use of by-products of an industry).
Combination gives the large enterprises still greater preponderance in the
competitive struggle.
At a certain level of development the concentration of production brings
about monopoly in real earnest. A few dozen giant concerns can more easily
come to an agreement amongst themselves than can hundreds and thousands
of small ones. On the other hand, in the process of competitive struggle which
is played out among themselves by the largest concerns, victory goes to the
industrial giants which dispose of enormous amounts of profit, and monopoly
ensures high profits. Thus free competition gives place to monopoly. This
change-over constitutes the economic essence of imperialism. The bringing
about of monopoly by concentration of production is a regular feature of the
present stage of capitalist production.
Monopoly means an agreement, alliance or association between
capitalists who concentrate in their hands the production and sale of a
substantial part of the production of one or a number of branches, in order to
fix high prices for commodities and obtain monopolist high profits. Sometimes
monopolies are individual very large concerns which occupy a dominant
position in a particular branch of industry.

The simplest forms of monopoly are short-term agreements about

selling-prices. These are known by a variety of names: conventions, corners,
rings, etc. More advanced forms of monopoly are cartels, syndicates, trusts
and concerns. A cartel is a monopolistic alliance, the partners in which agree
on conditions of sale and terms of payment, divide the markets amongst
themselves: decide the quantity of goods to be produced, and fix prices. The
quantity of goods which each partner in a cartel is allowed to produce and sell
is called his quota; exceeding the quota is punished by payment of a fine to the
common fund of the cartel. A syndicate is a monopoly organisation in which the
sale of goods, and sometimes also the purchase of raw material, is effected
through a common office. A trust is a monopoly in which the ownership of all
the enterprises is unified, their owners having become shareholders who draw
profit in accordance with the number of shares they hold. A trust is headed by
a management which is in charge of all production, sale of goods and finance in
respect of the previously independent enterprises. Trusts frequently form part
of wider unions called concerns. A concern is an association of a number of
enterprises in different branches of industry, commercial firms, banks,
transport and insurance companies, based upon common financial dependence
on a particular group of very big capitalists.
Monopolies occupy the commanding heights in the economies of the
capitalist countries. They embrace heavy industry and also many branches of
light industry, railway and river transport, banks, home and foreign trade and
have also brought agriculture under their yoke.

Iron and steel production in the U.S.A. is dominated by eight monopolies which in 1953
controlled 83 per cent of all the countrys steel-production capacity; the two largest of them,
the United States Steel Corporation and the Bethlehem Steel Corporation, disposed of 49 per
cent of the total productive capacity. The oldest monopoly in the U.S.A. is the petroleum trust,
Standard Oil. In the motor-car industry three firms are of decisive importance: General Motors,
Ford and Chrysler. In the electrical engineering industry the dominant position is occupied by
two firms: General Electric and Westinghouse. The chemical industry is controlled by the
Dupont de Nemours concern and the aluminium industry by the Mellon concern.
In Britain the role played by monopoly associations grew especially after the first world
war, when cartel associations arose in the textile, coal and iron and steel industries and in a
number of new industries. Imperial Chemical Industries controls about nine-tenths of the total
production of basic chemicals, about two-fifths of that of dyes and almost the entire production
of nitrogen in the country. It is closely connected with the principal, branches of British industry
and in particular with armaments concerns.
In Germany cartels became widespread at the end of last century. In the period
between the two world wars the country was dominated by the Steel Trust (Vereinigte
Stahlwerke), which employed about 200,000 manual and clerical workers, the coal
monopolies, the Krupp arms concern, and the General Electric (A.E.G.) and Siemens electrical
equipment concerns. In Western Germany in 1952 the large joint-stock companies (those with
capital in excess of 10 million marks) held 74 per cent of all the capital of joint-stock
companies. By 1955 their share of total share capital had grown to 80 per cent. In the mining
industry the largest firms owned 90 per cent of all the share capital, in iron and steel 81 per
cent, and in the oil industry 99 per cent. The capitals of the three companies which succeeded
the Chemical Trust were three times as large as the capitals of all the remaining companies in
the chemical industry of Western Germany. In the electrical engineering industry eight large
firms owned 82 per cent of the share capital. Two of the largest of them, General Electric
(A.E.G.) and Siemens, together with the firms under their control, possessed 75 per cent of all
the share capital in the electrical engineering industry.
In France at the present time the entire production of aluminium is concentrated in the
hands of a single company. One firm controls 80 per cent of the entire production of dye-stuffs;
75 per cent of shipbuilding is in the hands of two companies. Three companies control 72 per
cent of the cement industry, 90 per cent of the manufacture of rubber tyres, 65 per cent of the
sugar industry. In enterprises belonging to four companies are produced 96 per cent of the
total output of cars. Five companies control 70-75 per cent of all steel production, 90 per cent
of oil-refining, and 50 per cent of cotton textiles.
In Italy, in Japan and even in such small countries as Belgium, Sweden and
Switzerland, monopoly organisations hold the commanding heights in industry.
In pre-revolutionary Russia large monopolies embraced first of all the chief branches of
heavy industry. The Prodamet syndicate (association for sale of the products of metallurgical
enterprises) which arise in 1902, controlled the marketing of more than four-fifths of Russias
iron and steel output. In 1904 the Prodvagon syndicate was organised; this held an almost
complete monopoly of the production and marketing of railway trucks. A syndicate of the same
kind united the locomotive-making works. The Produgol syndicate was formed in 1904 by the
largest coal enterprises of the Donbas, which belonged to French and Belgian capital; it
embraced three-quarters of the entire coal output of the Donbas.
 Bourgeois economists, trying to whitewash present-day capitalism, affirm
that the spread of monopoly tends to cure the bourgeois system of such evils
as competition, anarchy of production and crises. In fact, however, not only can
imperialism not eliminate competition, anarchy of production and crises, but it
renders still more acute all the contradictions of capitalism.
Lenin showed that imperialism is incapable of reconstructing capitalism
from top to bottom. Alongside the predominant role of monopolies there
continue to exist in all capitalist countries numerous medium and small
enterprises and masses of petty producerspeasants and craftsmen.
The monopolies formed in certain branches of industry intensify the
chaotic character which is inherent in capitalist economy as a whole. The
monopolies, which have grown out of free competition, do not eliminate the
latter but exist over it and alongside of it, and thereby give rise to a number of
very acute, intense antagonisms, frictions and conflicts. (Lenin, Imperialism,
Selected Works, 1950, English edition, vol. I, Pt.. 2, p. 524.).
First, competition does not cease inside the monopolies. The members of
syndicates and cartels fight among themselves for the most profitable markets
and for the largest share (quota) of production and sales. Within the trusts and
concerns a struggle goes on over the managing positions, over the controlling
interests and over the distribution of profits.
Secondly, competition goes on between the monopolies: both between
monopolies in one and the same branch and between monopolies in different
branches which supply each other with goods (e.g., the steel and motor-car
trusts) or which produce goods that can be substituted for one another (coal,
petroleum, electrical power). Under conditions of a limited capacity of the
internal market the monopolies which produce consumer, goods wage a
ferocious struggle for outlets for their goods.
Thirdly, competition goes on between the monopolies and the enterprises
outside the monopolies. The monopolised branches stand in a privileged
position relative to others. The monopolies take all possible measures to
strangle outsider, pirate enterprises which do not form part of the
monopoly associations. The dominance of monopoly imparts to the competitive
struggle a particularly destructive and predatory character. The monopolies
unleash for the purpose of strangling a rival all possible methods of direct
coercion, bribery and blackmail, resort to complicated financial intrigues and
make extensive use of the State apparatus.
The dominance of monopoly leads to further socialisation of production.
But the fruits of this socialisation fall into the hands of a few monopolists,
whose oppression of the remainder of the population becomes particularly
heavy. There takes place a further deepening of the basic contradiction of
capitalismthe contradiction between the social character of production and
the private capitalist form of appropriation, as a result of which crises become
still more devastating.
 Concentration and Monopoly in Banking. The New Role of
the Banks

Our conception of the actual power and importance of present-day

monopoly cannot be sufficiently complete unless note be taken of the role of
the banks. The concentration of capital and the transition from free competition
to monopoly take place in banking as in industry. At first the banks served
mainly as intermediaries for payments. With the development of capitalism the
activity of the banks as traders in capital became more extensive. The
accumulation of capital and concentration of production in industry led to the
concentration in the banks of enormous amounts of spare money seeking
profitable application. The share of the large-scale banks in the total amount of
bank turnover steadily grew.
In banking as in industry; concentration leads to monopoly. By means of
share purchases, granting of credit, etc., the largest banks subject the small
ones to themselves. Once having acquired a monopoly position, the big banks
conclude agreements among themselves about the division of spheres of
influence. Monopoly unions of banks are formed. Each union of this kind rules
over dozens and sometimes even of smaller banks, which become in fact
branches of the big ones. Through a widespread network of branches the big
banks gather together in their safes the resources of a great number of
enterprises. Nearly all the money capital of the capitalist class and the savings
of other strata of the population are placed at the disposal of small groups of
banking magnates.

In the thirty-three years before the first world war (1880-1913) the mere increase in
the total of deposits in the banking systems of the four largest capitalist Statesthe U.S.A.,
Germany Britain and France-amounted to 127 milliard marks. From then onward the increase
in deposits was still more rapid: in a period less than half as long, from 1913 to 1928, deposits
in these countries grew by 183 milliard marks.
In the U.S.A. the share taken by the twenty largest banks in the total deposits of all the
banks was in 1900 15 per cent, in 1929 19 per cent, in 1939 27 per cent and in 1952 29 per
cent. The total number of commercial banks in the U.S.A. declined between 1920 and the end
of 1954 from 30,000 to 14,400. In Britain the total balances of the five biggest banks
amounted in 1900 to 28 per cent, in 1916 to 37 per cent, In 1929 to 73 per cent and in 1952
to 79 per cent of the total balances of all the British banks of deposit. In France in 1952 six
banks of deposit held 66 per cent of the total deposits in all the French banks. In Germany on
the eve of the first world war, about one half of the total deposits in all the banks were
concentrated in the big Berlin banks, and in 1929-32 two-thirds.

The concentration of industry and the formation of banking monopolies

leads to an essential alteration in mutual relations between the banks and
industry. As the size of enterprises grows, ever greater becomes the
importance of the large-scale, long-term credits granted by the banks to the
industrial capitalists. The growth in the amount of deposits placed at the
disposal of the banks creates extensive possibilities for such long-term
investment of banking resources in industry. The most widespread form in
which the money resources of the banks are invested in industry is the
purchase of shares in various enterprises. The banks facilitate the formation of
joint-stock enterprises by undertaking the reorganisation of private capitalist
enterprises into joint-stock companies and the formation of new joint-stock
companies (promotion). The sale and purchase of shares is carried out to an
ever-increasing extent through the medium of the banks.
The interests of the banks and of the industrial enterprises become
merged ever closer and closer. When a bank finances a few large enterprises in
a particular branch of industry, it becomes interested in monopolistic
agreements between these enterprises and facilitates such agreements. In this
way the banks greatly intensify and accelerate the process of concentration of
capital and formation of monopolies. The transformation of the banks from
modest intermediaries into a handful of all powerful monopolists is one of the
fundamental processes of the transition from the capitalism of the epoch of
free competition to monopoly capitalism.

Finance Capital and the Financial Oligarchy

As a result of the banks becoming joint owners of industrial, commercial

and transport enterprises and acquiring their shares and bonds and of
industrial monopolies in their turn possessing shares in the banks connected
with them, an interweaving of monopoly banking and industrial capital takes
place and a new kind of capital arises-finance capital. Finance capital is the
capital of banking and industrial monopolies which has become knit together
into one. The epoch of imperialism is the epoch of finance capital.
Defining finance capital, Lenin emphasised three factors of primary
importance:

The concentration of production; the monopolies arising

therefrom; the merging or coalescence of the banks with industrysuch
is the history of the rise of finance capital and such is the content of this
term. (Lenin, Imperialism, Selected Works, 1950, English edition, vol. I,
Pt. 2, p: 478.)

The coalescence of bank capital with industrial capital is strikingly

expressed in the personal union of the heads of the banking and industrial
monopolies. The same persons head the largest monopoly associations in
banking, industry, commerce and the other branches of capitalist economy.

In Germany before the first world war the six biggest Berlin banks had their
representatives serving as directors of 344 industrial enterprises and as members of 407 more;
751 companies in all. On the other hand, fifty-one of the biggest industrialists were members
of the governing bodies of these six banks. Later on, this personal union developed still further.
In 1932 there were seventy of the biggest industrialists on the governing bodies of the three
principal Berlin banks. In the U.S.A. in 1950 a narrow group made up of 400 industrialists and
bankers occupied one-third of the 3,705 of the directors posts in 250 of the largest
corporations (joint-stock companies), possessing 42 per cent of all the capital in the country.

In every capitalist country a small handful of the biggest bankers and

industrial monopolists hold in their grasp all the vitally important branches of
the economy and dispose of the overwhelming bulk of social wealth.
Management by capitalist monopolies inevitably becomes the rule of a finance
oligarchy (the Greek word oligarchy means literally the rule of a few).
Imperialism is marked by the omnipotence of the monopoly trusts and
syndicates, the banks and the finance oligarchy in the developed capitalist
countries.
The domination of the finance oligarchy is effected in the economic
sphere above all by means of the so-called holding system. This means that a
big financier or group of financiers controls the principal joint-stock company
(the parent company) which heads the concern; this company in its turn,
through owning the controlling interests in them, dominates the daughter
companies which depend on it; grand-daughter companies are similarly
situated, and so on. By means of this system the financial bosses are able to
control vast sums of the capital of others.

By means of a widely ramified system of holdings, the eight biggest financial groups in
the U.S.A.-Morgan, Rockefeller, Kuhn-Loeb, Mellon, Dupont, and the Chicago, Cleveland and
Boston groups-occupy the dominant position in that countrys whole economy. The Morgan
groups sphere of influence in 1948 embraced banks and corporations with a total capital of 55
milliard dollars; the Rockefeller group controlled 26.7 milliard, the Dupont group 6.5 milliard
and the Mellon group 6 milliard. In 1955 the total number of corporations in the U.S.A.
exceeded 660,000. Over 75 per cent of the total amount of the assets of all corporations was
concentrated, by means of the holding system, in the hands of 66 milliardaire corporations
(i.e., corporations with assets of a milliard dollars and upwards), which disposed directly of
28.3 cent of the total amount of assets.

The finance oligarchy, making use of its effective monopoly position,

obtains vast and ever growing amounts of profit from promotion (i.e., the
creation of joint-stock companies), from issuing shares and bonds, from
floating State loans and from profitable State orders. Finance capital,
concentrated in a few hands, levies an ever-increasing tribute from society.
The financial oligarchy rules in the political sphere too. Both the internal
and external policies of the bourgeois states are subordinated to the self-
interest of the biggest monopolies.

Export of Capital

Characteristic of pre-monopoly capitalism, in which free competition was

predominant, was the export of goods. Characteristic of imperialist capitalism,
with the domination of monopoly, became the export of capital.
The export of capital is undertaken for the purpose of obtaining higher
profits. It occurs in two main forms: either by the making of loans to
governments, towns and banks mother countries, or by the establishing abroad
of industrial, commercial and banking enterprises, obtaining of concessions,
building of railway lines, and also the buying up cheap of already existing
enterprises in countries weakened, for example, by war.
The export of capital is caused, first, by the domination of monopoly in
all the countries of developed capitalism and, second, by the monopoly position
of a few rich countries in which the accumulation of capital has attained very
great dimensions. A vast superabundance of capital came into being in these
countries on the threshold of the twentieth century.
The superabundance of capital in developed capitalist countries is
negative in character, for the low standard of living of the masses in these
countries sets limits to the further growth of production, and the lagging of
agriculture behind industry becomes increasingly marked, together with the
unevenness of development of various branches of economy generally. If only
capitalism could raise up agriculture and could increase the standard of living
of the. working masses, then there could be no question of a superabundance
of capital. But then capitalism would not be capitalism, for both unevenness of
development and a semi-starvation standard of living for the mass of the
population are fundamental conditions and prerequisites of this mode of
production. The superabundance of capital in capitalistically developed
countries is thus only relative.

The necessity for exporting capital arises from the fact that in a
few countries capitalism has become overripe and (owing to the
backward state of agriculture and the impoverished state of the masses)
capital cannot find a field for profitable investment. (Lenin,
Imperialism, Selected Works, 1950, English edition, vol. I, Pt. 2, p.
495.)

In its search for maximum profits, surplus capital hastens abroad.

Capital is exported predominantly to backward countries, in which there is little
capital, wages are low, raw material is cheap, and the price of land is
comparatively small. In these countries monopoly capital is able to obtain and
does actually obtain vast profits. The export of capital is closely connected with
the growth in the export of commodities: the monopolies which export capital
usually press their goods upon the debtor countries on conditions profitable to
themselves. Foreign monopolies seize control of markets and sources of new
material in debtor countries.
Capital is exported not only to backward countries but also to industrially
developed ones. This happens during the period of especially rapid
development of such countries, which creates a demand for an influx of capital
from abroad (e.g., U.S.A. before the first world war), or else when they are
weakened as a result of war (Germany after the first world war, the Western
European capitalist countries after the second world war).
Bourgeois economists and politicians depict the export capital as aid
and a boon allegedly conferred by the developed capitalist countries on
backward peoples. In fact, the export of capital, while hastening the
development of capitalist relations in backward countries, conduces at the
same time to the all-round enslavement and plundering of these countries by
alien monopolists. Export of capital provides one of the bases for the system of
imperialist oppression, in which a few rich usurer-countries exploit the greater
part of the world. As a result of the export of capital the world is divided into a
handful of usurer-States and a gigantic majority of debtor-States.
The export of capital has important consequences for the capital-
exporting countries. These countries on the one hand multiply their wealth and
strengthen their position on the world market. They receive from abroad a
continual flow of surplus-value in the form of interest on loans or profits from
overseas enterprises. On the other hand, stagnation in the industrial
development of the capital-exporting countries themselves not infrequently
sets in. One of the chief results of the export of capital is a growth of rivalry
between the Powers, a struggle for the most profitable spheres of investment
of capital.

Down to the first world war the principal countries exporting capital were Britain, France
and Germany. Their capital investments abroad amounted to 175-200 milliard francs: Britain-
75-100 milliard, France-60 milliard, GermanY-44 milliard. Export of capital from the U.S.A. did
not as yet play any great role, amounting to less than 10 milliard francs.
After the first world war very great changes took place in world export of capital.
Germany lost her capital invested abroad. The foreign investments of Britain and France were
substantially reduced and the export of capital from the U.S.A. increased markedly. In 1929 the
U.S.A. almost drew equal to Britain in the size of its foreign investments.
After the second world war the export of capital from the U.S.A. grew still more. By the
end of 1949 American capital investments abroad exceeded the total of overseas capital
investments of all the rest of the capitalist States put together. The total amount of American
capital invested abroad grew from II.4 milliard dollars in 1939 to 39.5 milliard dollars at the
end of 1953. The total amount of British capital investments abroad fell from 3.5 milliard
pounds sterling in 1938 to 2 milliard in 1951.

Economic Division of the World between Alliances of

Capitalists. Internatio1J,al Monopolies

As the export of capital grows and as the foreign connections and

spheres of influence of the biggest monopolies expand, conditions arise for
the division of the world market among them. International monopolies are
formed.
International monopolies are agreements concluded between the biggest
monopolies of various countries on the division of markets, price policy, and
the volume of production. The formation of international monopolies means the
attainment of a new level of concentration of production and capital,
incomparably higher than before. Many international monopolies are formed
with the very active participation of capitalist States, and are among the most
important methods of economic expansion.
Defenders of international monopolies try to present them as instruments
of peace, alleging that international agreements between monopolists can
settle by peaceful means the contradictions which arise between imperialist
groups and countries. Such assertions have nothing in common with reality. In
fact, the economic division of the world between international monopolies is
carried out in accordance with the strength of the parties, while the strength of
the various monopoly groups undergoes changes. Each of them wages an
unceasing struggle to enlarge its share and expand its sphere of monopoly
exploitation. Changes in the balance of forces inevitably bring in their train
intensification of the struggle for re-division of markets, and sharpening of the
contradictions between the different groups and the States supporting them.
International agreements between monopolists are notorious for their
instability, and bear within them the seeds of inevitable conflicts.

International monopolies began to arise in the 1860s-80s. Towards the end of last
century their total number did not amount to more than forty. On the eve of the first world war
there were reckoned to be about 100 international cartels and before the second world war
their number had risen to more than 300.
Even before the first world war the petroleum market was in practice divided between
the American Standard Oil trust, controlled by Rockefeller, and the Royal-Dutch-Shell concern
in which British capital wielded preponderant influence. The market for electrical equipment
was shared between two monopoly firms: the German General Electric Company (A.E.G.) and
the American General Electric Corporation, controlled by the Morgan group.
International monopoly agreements embraced even such fields as the production of
armaments. The largest firms engaged in the manufacture of armsArmstrong Vickers in
Britain, Schneider-Creusot in France, Krupp in Germany, Bofors in Swedenwere linked
together by a multitude of ties over a very long period.
International monopolies played a big part in preparing the second world war. The
largest monopolies in the U.S.A., Britain and France, connected by cartel agreements with the
German trusts, inspired and guided the policy of the ruling circles of these countries, a policy of
encouraging and instigating Hitlerite aggression, which led to war.
After the second world war a series of international monopolies were formed to
guarantee the economic and military interests of American Imperialism. This is the function for
instance of the so-called European Coal and Steel Union, embracing Western Germany,
France, Italy, Belgium, Holland and Luxemburg.

Completion of the Territorial. Division of the World among

the Great Powers and the Struggle to Re-divide it

Along with the economic division of the world between alliances of

capitalists, and in connection with it, there takes place a territorial division of
the world among the bourgeois States, a struggle for mastery over foreign
lands, a struggle for colonies and semi-colonies.
Colonies is the name given to countries which have been deprived of
State independence and have become possessions of imperialist metropolitan
States.
Semi-colonies is the name given to economically underdeveloped
countries which are objects of colonial exploitation on the part of imperialist
powers and are economically and politically dependent on these States but
retain formal independence. Besides colonies and semi-colonies there exist in
the period of imperialism a great variety of types of dependent countries whose
degree of dependence varies and is subject to all sorts of changes. Typical of
this epoch is not only the two main groups of countries: those owning colonies,
and colonies, but also the diverse forms of dependent. countries which,
officially, are politically independent, but in fact are enmeshed in the net of
financial and diplomatic dependence. (V. 1. Lenin, Imperialism, the Highest
Stage of Capitalism, Selected Works, 1950, vol. I, Pt. 2, p. 521.)
Defenders of the bourgeoisie depict imperialist rule over the colonies as a
civilising mission, having the aim of leading backward peoples on to the path
of progress and independent development. In reality imperialism dooms the
colonial and dependent countries to economic backwardness, and hundreds of
millions of the inhabitants of these countries are doomed to suffer unheard-of
oppression and slavery, lack of rights and poverty, hunger and ignorance. The
seizure of colonies by the imperialist Powers leads to unprecedented worsening
of national oppression and racial discrimination. In Lenins phrase, capitalism
was transformed in its imperialist phase from the liberator of nations, which it
had been in the period of struggle against feudalism, into a monstrous
oppressor of nations.
 As early as the middle of the eighteenth century Britain enslaved India, a country of
most rich natural resources and with a population which in numbers many times exceeded that
of the metropolis. In the middle of the nineteenth century the U.S.A. seized extensive
territories belonging to its neighbour Mexico, and in the following, decades established its
domination over a number of countries of Latin America.
In the 1860s-70s the colonial possessions of the European countries still occupied a
comparatively small part of the overseas territories.
In the last quarter of the nineteenth century, in the period of transition to the monopoly
stage of capitalism, the map of the world underwent radical changes. All the developed
capitalist countries followed the oldest colonial power, Britain, on the road of territorial
conquest. France became a great colonial power towards the end of the nineteenth century,
with possessions amounting to 3.7 million square miles.
Germany seized a million square miles of territory with 14.7 million inhabitants, Belgium
900,000 square miles with 30 million inhabitants, the U.S.A. conquered the most important
foothold in the Pacific Ocean-the Philippines-together with Cuba, Puerto Rico, Guam, Hawaii
and Samoa, besides subjecting de facto a number of countries of South and Central America.
Between 1876 and 1914 the so-called Great Powers conquered about 10 million
square miles of territory, which was one-and-a-half times the area of the metropolitan
countries themselves. A number of countries were reduced to semi-colonial dependence on the
imperialist States: China, with its population amounting to about a quarter of all mankind, and
likewise Turkey and Persia (Iran). By the beginning of the first world war more than half of
humanity was under the rule of the colonial Powers.
The imperialists establish and maintain their power over the colonies by methods of
deceit and coercion, utilising the superiority of their military technique. The history of colonial
policy is an unbroken chain of wars of conquest and punitive expeditions against the enslaved
peoples, and also of bloody clashes between the countries possessing colonies. Lenin called the
war of the United States against Spain in 1898 the first war of the imperialist type, marking the
beginning of the epoch of imperialist wars. The revolt of the Filipino people against their
conquerors was cruelly put down by the American forces.

Towards the beginning of the twentieth century the divisions of the world
was complete. The colonial policy of the capitalist countries had led to the
conquest of all the lands not hitherto occupied by the imperialists. No more
free lands remained; a situation had been created in which every fresh
conquest presupposed wresting territory from its owner. The completion of the
division of the world placed on the order of the day they, struggle to re-divide
it. The struggle to re-divide the already divided world is one of the fundamental
distinguishing features of monopoly capitalism. This struggle eventually takes
the form of a struggle for world domination, and inevitably leads to imperialist
wars on a world scale.
Imperialist wars and arms races bring very heavy privations upon the
peoples of all the capitalist countries and cost millions of human lives. At the
same time wars and militarisation of the economy are profitable matters for
the monopolies, bringing them particularly high profits.

The Basic Economic Law of Monopoly Capitalism

As already mentioned, the economic essence of imperialism consists of

the replacement of free competition by the dominance of monopoly. The
monopolies have as their aim in fixing monopoly prices, as Lenin put it, the
obtaining of high monopoly profits, which considerably exceed the average
profit. The obtaining of high monopoly profits by the monopolies results from
the very nature of imperialism, and is guaranteed by the unprecedented
intensification of the exploitation of the working class, by the plundering of the
peasantry and other petty commodity producers, by the export of capital to
backward countries and the sucking out of all the vital juices from these
countries, by colonial conquests and imperialist wars, which are a goldmine for
the monopolists. Lenins works devoted to setting forth the economic and
political essence of imperialism contain the initial propositions of the basic
economic law of monopoly capitalism. On the basis of Lenins initial
propositions, Stalin formulated the basic economic law of modern capitalism.
The main features and requirements of the basic economic law of
monopoly capitalism are the following:

The securing of the maximum capitalist profit through the

exploitation, ruin and impoverishment of the majority of the population
of the given country, through the enslavement and systematic robbery of
the peoples of other countries, especially backward countries, and, lastly,
through wars and militarisation of the national economy, which are
utilised for the obtaining of very high profits. (Stalin, Economic Problems
of Socialism in the U.S.S.R., 1952, F.L.P.H. edition, pp. 43-4.)

Thus, the basic economic law of capitalism, the law of surplus-value, is

further developed and made concrete in the period of imperialism. In pre-
monopoly capitalism free competition led to a levelling of the rate of profit of
the individual capitalists, and the law of the average rate of profit prevailed. In
the conditions of imperialism the monopolies secure for themselves high,
monopolistic, maximum profits. It is precisely maximum profit that furnishes
the driving force of monopoly capitalism. Outflow of capital from one branch to
others also occurs in the monopoly stage of capitalism and the tendency to
equalisation of profits exists. This tendency clashes, however, with the
operation of the basic economic law of monopoly capitalism, the law of
maximum capitalist profit. In the epoch of imperialism commodities produced
by monopolised branch of production are sold for the most part at monopoly
prices (exceeding the price of production and ensuring high monopoly profits,
but commodities produced by non-monopolised branches are often sold at
prices below the price of production, so that the entrepreneurs concerned do
not receive even the average profit.
The objective conditions for the obtaining of maximum profit are created
by the establishment of the dominance of the monopolies in the various
branches of production. The concentration and centralisation of capital attains
their highest level in the phase of imperialism. Because of this, the expansion
of production calls (or vast investments of capital. On the other hand, in the
period of monopoly capitalism a ferocious competitive struggle develops among
these giant enterprises. It is the most powerful monopolies, which dispose of
the largest capitals and receive the maximum profits, that are victorious in this
struggle.
By drawing upon the maximum profits the monopolies are able to secure
their supremacy in the capitalist world. The monopolies pursuit of maximum
profits leads to a sharpening of all the contradictions of capitalism.
 The general basis of the maximum profit of the capitalist monopolies, as
of all capitalist profits, is surplus-value, extracted from the workers through
exploiting them in the process production. The exploitation of the working class
is raised the monopolies to its utmost extent. By using all kinds sweating
systems of organisation and payment of labour an exhausting intensification of
labour is achieved, which signifies above all a tremendous growth in the rate
and amount of surplus-value extracted from the workers. Further, the
intensification of labour leads to many of the workers becoming redundant and
falling into the ranks of the unemployed, without hope of returning to industry.
Also thrown out of work are all those workers who find the unbearably
excessive speeding-up of the production processes beyond their strength.

In the U.S.A. the rate of surplus-value in mining and manufacturing industry, calculated
on the basis of official data, was in 1889 145 per cent, in 1919 165 per cent, in 1929 210 per
cent, in 1939 220 per cent and in 1947 about 260 per cent. Thus, over a period of less than
sixty years the rate of surplus-value grew by 80 per cent.

At the same time, real wages decline as a result of the rise in the cost of
living and the growing burden of taxation. In the epoch of imperialism the gap
between the workers wages and the value of his labour-power grows ever
wider. This signifies an intenser operation of the general law of capitalist
accumulation, which causes the relative and absolute impoverishment of the
proletariat. The growth in the exploitation of the working class in the process of
production is supplemented by robbery of the working people as consumers;
the workers have to overpay large sums to the monopolies, which fix high
monopoly prices for the goods they produce and sell.
In the conditions of monopoly capitalism the goods produced by the
monopolies are sold not at their prices of production but at substantially higher,
monopoly prices.
A monopoly price is equivalent to the cost of production plus the
maximum profit, which considerably exceeds the average profit; a monopoly
price is higher than the price of production and, as a rule, exceeds the value of
the goods. At the same time monopoly prices, as Marx already pointed out,
cannot abolish the limits set by the value of commodities. The high level of
monopoly prices does not alter the total sum of value and surplus-value
produced in world capitalist economy. One of the sources of the maximum
profit received by the monopolies is the redistribution of surplus-value, as a
result of which the level of profits declines considerably in the non-monopolised
enterprises. Maintaining prices at a high level which exceeds the value of the
commodities, the monopolies appropriate the results of the growth in the
productivity of labour and the reduction in the costs of production. What the
monopolies gain the workers, the petty producers and the inhabitants of the
dependent countries lose.

The fiscal policy of the bourgeois States serves as an important instrument of monopoly
inflation of prices. In the epoch of free competition it was predominantly the weaker countries,
whose industries needed protection from foreign competition, that resorted to high customs
duties. In the epoch of imperialism, on the contrary, high tariffs serve the monopolies as a
means of attack, of struggle for fresh markets. High tariffs help to keep up monopoly prices
within the country.
For the purpose of conquering new markets abroad the monopolies make extensive use
of dumping-the sale of goods in foreign markets at knockout prices, considerably less than the
prices charged in the home market and often even below the cost of production. Expansion of
external outlets by means of dumping helps to keep prices high inside the country itself
without reducing production, while the losses caused by dumping are covered by charging
these enhanced prices on the home market. After the external market in question has been
conquered and consolidated by the monopolies, they go over to selling their goods there at
high monopoly prices.

Exploitation of the bulk of the peasantry by the monopolies is expressed

above all in the fact that the domination of the monopolies gives rise to an
increasing divergence between the level of prices of agricultural produce and
that of industrial products (the so-called price-scissors): while selling their
goods at inflated prices, the monopolies at the same time buy t from the
peasants the produce of their holdings at extremely, reduced prices (monopoly
low purchase prices). Monopoly prices, which serve as a means of pumping
resources out of agriculture, hold back its development. One of the most
powerful instruments for the ruining of the peasant holdings is the
development of mortgage credit. The monopolies get the peasants entangled in
loans and then acquire their land, and chattels for themselves at very low
prices. Through mortgages, through the machinations of financial pirates,
through high taxes and excise, through high rents and especially through
competition on the part of the large capitalist landowners, the bourgeoisie is
ruining the middle and small peasants, M. Thorez wrote in his work The
Communist Partys Policy in the Countryside.
The purchase of the peasants produce by the monopolies at extremely
low prices does not mean at all that the urban consumer receives cheap
foodstuffs. Between the peasant and the urban consumer stand the
middlemen-merchants associated together in monopoly organisations which
ruin the peasants and fleece the urban consumers.
Further a source of maximum profits for the monopolies is the
enslavement and plundering of economically backward and dependent
countries by the bourgeoisie of the imperialist States. The systematic robbery
of the colonies and other backward countries and the transformation of a
number of independent countries into dependent countries, constitute an
integral feature of monopoly capitalism. Imperialism cannot live and develop
without an uninterrupted flow of tribute from the foreign lands which it
plunders.
The monopolies draw vast revenues above all from their capital
investments in the colonial and dependent countries. These revenues are the
fruit of the most ruthless, and inhuman exploitation of the working masses of
the colonial world. The monopolies gain through non-equivalent exchange, i.e.,
selling their commodities in colonial and dependent countries at prices
considerably in excess of their value, and buying the commodities produced in
these countries at extremely low prices which do not cover their value. In
addition, the monopolies draw from the colonies high profits on the transport,
insurance and banking operations which they carry out.
Finally, wars and militarisation of the economy are one of the ways
whereby the monopolies secure maximum profits. Wars enrich the magnates of
finance capital to an enormous extent and in the intervals between wars, the
monopolies try to maintain the high level of their profits through an
unrestrained arms drive. Wars and militarisation of the economy bring the
monopolists fat war contracts, paid for by the treasury at inflated prices, and
an abundant flow of loans and subsidies from the resources of the State
Budget. In wartime all labour laws are suspended, the workers are proclaimed
to be in a state of mobilisation and strikes are forbidden. All this enables the
capitalists to raise the degree of exploitation through screwing up the intensity
of labour. At the same time the standard of living of the working masses falls
as a result of the growth of taxation and the rising cost of living.
Thus the militarisation of capitalist economy both in war conditions and in
peacetime means a severe intensification of the exploitation of the working
masses in the interests of the growth of maximum profits for the monopolies.
The basic economic law of modern capitalism which determines the
whole course of development of capitalism in its imperialist phase, enables us
to understand and explain the inevitability of the growth and sharpening of the
insoluble contradictions inherent in it.

BRIEF CONCLUSIONS
(1) Imperialism, or monopoly capitalism, is the highest and last stage of
development of the capitalist mode of production. The transition from pre-
monopoly capitalism to monopoly capitalism took place in the last third of the
nineteenth century. Imperialism finally took shape at the beginning of the
twentieth century.
(2) The basic economic features of imperialism are: (i) concentration of
production, and capital, attaining such a high level of development that it has
created monopolies which play a decisive role in economic life; (ii) the merging
of bank capital with industrial capital and formation on this basis of finance
capital and a financial oligarchy; (iii) export of capital, as distinct from export
of goods, assumes particularly great Importance; (iv) international monopoly
alliances are formed among the capitalists to divide the world among
themselves; (v) the territorial division of the earth among the largest
imperialist powers is completed. The completion of the economic division of the
world leads to a struggle to re-divide it, and this inevitably gives rise to
imperialist wars on a world scale.
(3) The basic economic law of monopoly capitalism is the ensuring of the
maximum capitalist profit through the exploitation, ruining and impoverishing
of the majority of the inhabitants of the country concerned, through enslaving
and systematically robbing the peoples of other countries, especially backward
countries, and finally, through wars and militarisation of the national economy.
 CHAPTER XIX

THE COLONIAL SYSTEM OF IMPERIALISM

Role of the Colonies in the Period of Imperialism

Colonial conquests, the effort to form large empires by subjugating

weaker countries and peoples also existed before the epoch of imperialism, and
even before the rise of capitalism. But, as Lenin showed, the role and
significance of the colonies undergoes an essential change in the epoch of
imperialism, not only as compared with pre-capitalist epochs, but also as
compared with the period of pre-monopoly capitalism. To the old methods of
colonial policy there is added the struggle of the monopolists for sources of raw
material, for the export of capital, for spheres of influence and territories of
economic and military-strategic importance.
As has been shown, the enslavement and systematic robbery by the
imperialist States of the peoples of other countries, especially backward ones,
the transformation of a succession of independent countries into dependent
ones, constitutes one of the main features of the basic economic law of
present-day capitalism. In the course of its extension throughout the world,
capitalism gave rise to a tendency toward economic rapprochement between
separate countries, to the abolition of national isolation and the gradual
unification of vast territories into one connected whole. The method by which
monopoly capitalism accomplishes the gradual economic unification of vast
territories is the enslavement of colonies and dependent countries by
imperialist powers. This unification takes place through the formation of
colonial empires, which are based on merciless oppression and exploitation of
the colonies and dependent countries by the metropolitan countries.
The imperialist period sees completed the formation of the capitalist
system of world economy, which is built up on relations of dependence, on
relations of domination and subjection. The imperialist countries have
subjected the peoples of the colonies and dependent countries to their rule by
means of intensified export of capital, extension of spheres of influence and
colonial conquests.

Capitalism has grown into a world system of colonial oppression and of

the financial strangulation of the overwhelming majority of the population of
the world by a handful of advanced countries. (Lenin, Imperialism, Selected
Works, 1950, English edition, vol. I, Pt. 2, p. 437.)

Thus the separate national economies have been transformed into links
of a single chain called world economy. At the same time, the worlds
population has been split into two campsa small group of imperialist countries
which exploit and oppress the colonial and dependent countries, and the vast
majority colonial and dependent countries, the peoples of which carry on a
struggle to free themselves from the imperialist yoke.
It is in the monopoly stage of capitalism that the colonial system of
imperialism has taken shape. The colonial system of imperialism means the
entire aggregate of colonies and dependent countries oppressed and enslaved
by the imperialist States.
Colonial pillage and conquest, imperialist lawlessness and violence,
colonial slavery, national oppression and lack human rights, and, finally, the
struggle of the imperialist Powers among themselves for domination over the
peoples of the colonial countriessuch are the forms in which the process of
creating the colonial system of imperialism has taken course.
By conquest and plundering of colonies the imperialist States strive to
overcome the mounting contradictions inside their own countries. The high
profits extracted from the colonies enable the bourgeoisie to bribe certain
sections of the skilled workers with whose aid the bourgeoisie tries to introduce
disruption into the workers movement. At the same time the exploitation of
the colonies leads to the contradictions of the capitalist system as a whole
becoming more acute.

Colonies as Agrarian and Raw-material Appendages of the

Metropolitan Countries.

In the epoch of imperialism the colonies are above all the most reliable
and profitable field for investment of capital. In the colonies the finance
oligarchy of the imperialist countries disposes of an undivided monopoly of
capital investments and obtains especially high profits.
As it penetrates the backward countries, finance capital breaks up the
pre-capitalist forms of economysmall-scale handicraft and semi-natural small-
peasant economyand stimulates the development of capitalist relations. For
the purpose of exploiting the colonial and dependent countries the imperialists
build railways on their territories and set up industrial enterprises for the
production of raw material. But at the same time imperialist domination in the
colonies retards the growth of the productive forces and deprives these
countries of the conditions which they need in order to develop economically
on independent lines. The imperialists have an interest in colonies remaining
economically backward, since backwardness helps them to preserve their
power over the dependent countries and to intensify the exploitation of these
countries.
Even where industry is comparatively further developed than elsewhere
for example, in some of the Latin American countriesthis means only the
mining industry and a few branches of light industry-cotton, leather, foodstuffs.
Heavy industry, which is the basis of a countrys economic independence, is
extremely weak; and engineering is hardly present at all. The ruling
monopolies take special measures to hinder the creation of industry producing
the instruments of production: they refuse credit for such purposes to the
colonies and dependent countries and will not sell the necessary equipment
and patents. The colonial dependence of backward countries stands in the way
of their industrialisation.

In 1920 Chinas share of world coal output was 1.7 per cent, of iron output 0.8 per cent,
of copper production 0.03 per cent. In India, the production of steel per head of the population
on the eve of the second world war (1938) amounted to 2.7 kilogrammes a year as compared
with 222 kilogrammes in Great Britain. The whole of Africa was in 1946 responsible for only 1.5
per cent of the fuel and electric power produced in the capitalist world. Even the textile
industry is feebly developed and backward in colonial and dependent countries. In India in
1947 there were about 10 million spindles as compared with 34.5 million spindles in Britain,
the population of which was only one-eighth that of India; in Latin America in 1945 there were
4.4 million spindles as compared with 23.1 million in the U.S.A.

Being deprived of the conditions needed for independent industrial

development, the colonies and semi-colonies remain agrarian countries. The
source of livelihood of the overwhelming bulk of the inhabitants of these
countries is agriculture, which is bound hand and foot in feudal relationships.
The stagnation and decline of agriculture hold back the growth of the internal
market.
The monopolies which dominate the colonies permit only those branches
of production to develop there which ensure the supply of raw materials and
foodstuffs for the metropolis. This means the extraction of minerals and the
cultivation of agricultural crops, with the initial stages of the working-up of
these. As a result, the economy of the colonies and semi-colonies assumes an
extremely one-sided character. Imperialism transforms the enslaved countries
into agrarian and raw-material appendages of the metropolis.

The economy of many dependent countries is specialised in the production of one or two
products, which go entirely for export. Thus in the period since the second world war petroleum
has constituted 97 per cent of Venezuelas exports, tin ore 70 per cent of Bolivias, coffee about
58 per cent of Brazils, sugar over 80 per cent of Cubas, rubber and tin over 70 per cent of
Malayas, cotton about 80 per cent of Egypts, coffee and cotton 60 percent of Kenyas and
Ugandas, copper about 85 per cent of Northern Rhodesias, cocoa about 50 per cent of the
Gold Coasts. This one-sided development of agriculture (so-called monoculture) places whole
countries completely at the mercy of the monopolist purchasers of raw material.

In connection with the transformation of the colonies into agrarian and

raw-material appendages of the metropolitan countries, the role of the colonies
as sources of cheap raw material for the imperialist States grows enormously.
The further capitalism develops, the more acute becomes competition and
hunting for sources of raw material throughout the world, and the more
desperate the struggle to grab colonies. In the conditions of monopoly
capitalism, when industry consumes huge masses of coal, oil, cotton, iron ore,
non-ferrous metals, rubber, etc., no monopoly can count itself secure if it does
not possess constant sources of raw material. The monopolies obtain from the
colonies and dependent countries the enormous amounts of raw material which
they need, at low prices. Monopoly possession of sources of raw material
confers decisive advantages in the competitive struggle. Seizure of the sources
of cheap raw material enables the industrial monopolies to enforce monopoly
prices on the world market, and to sell their products at inflated prices.

The imperialist, Powers obtain a number of the most important kinds of raw material
exclusively or largely from the colonies and semi-colonies. Thus, in the period since the second
world war the colonial and dependent countries have supplied the greater part of the natural
rubber consumed in the capitalist world, as also of the tin and the jute, about half the
petroleum, and a number of important foodstuffscane-sugar, cocoa, coffee and tea.
The sources of various kinds of strategic raw materials necessary for war purposes
coal, oil, non-ferrous and rare metals, rubber, cotton, etc. are the objects of ferocious
conflict. Over a number of decades the imperialist Powers, and the U.S.A. and Britain first and
foremost, have been fighting for monopoly possession of rich sources of oil. The distribution of
world oil resources affects not only the economic but also the political interests of the
imperialist Powers.

In the imperialist epoch the importance of the colonies as selling markets

for the metropolitan countries becomes greater. By means of an appropriate
customs policy the imperialists fence round the colonial markets so as to
exclude outside competition. In this way the monopolies are enabled to sell
their products in the colonies at exorbitantly inflated pricesincluding inferior
goods which they cannot sell elsewhere. The unequal terms of trade between
the imperialist Powers and the dependent countries grow steadily worse. The
monopolies which are engaged in trade with the colonies (buying-up of raw
materials and sale of industrial commodities) obtain vast profits. They are the
real rulers of entire countries, controlling the lives and fortunes of tens of
millions of people. The colonies serve as sources of extremely cheap labour-
power. Monstrous exploitation of the working masses guarantees especially
high returns on capital invested in colonies and dependent countries. In
addition, the metropolitan countries import from these countries hundreds of
thousands of workers who do particularly heavy work for extremely low wages.
Thus, the U.S. monopolies, especially in the South, subject workers from
Mexico and Puerto Rico to inhuman exploitation, the monopolies in France treat
North African workers in the same way, and so on.

Some idea of the size of the tribute which is exacted by the monopolies from the
colonies and semi-colonies is given by the following calculations, which have been made on the
basis of official data. The annual tribute received by British imperialism from India on the eve
of the second world war amounted to 150-180 million, of which 40-50 million was interest
on British capital investments; British State expenditure charged to Indias account was 25-
30 million: incomes and salaries of British officials and military officers in India accounted for
another 25-30 million; commission payments to British banks amounted to 15-20 million;
receipts from trade to 25-30 million; receipts from shipping to 20-25 million. The
American monopolies in 1948 drew revenue from the dependent countries as follows: from
capital investments 1.9 milliard dollars; from freight, insurance and other money-lending
operations another. 1.9 milliard dollars; from the sale of goods at inflated prices 2.5 milliard
dollars; from the purchase of goods at low prices 1.2 milliard dollars-in all, monopoly tribute to
the amount of dollars. Of this tribute not less than 2.5 milliard provided by the countries of
Latin America.

In circumstances in which the world has already been divided up and.

preparation is going forward for an armed struggle to re-divide it, the
imperialist Powers seize all territories which have or could have any value at all
as military footholds or as naval or air bases.
The colonies supply cannon fodder to the metropolitan countries. In the
first world war nearly one and a half million Negro soldiers from the African
colonies fought on Frances side. In wartime the metropolitan countries transfer
a substantial part of their financial burdens on to the backs of the colonies. A
considerable share of the war loans is realised in the colonies; Britain made
extensive use of the currency resources of its colonies during both the first and
second world wars.
The rapacious exploitation of the colonial and dependent countries by
imperialism accentuates the irreconcilable contradiction between the vital
needs of the economies of these countries and the selfish interests of the
metropolitan countries.

Methods of Colonial Exploitation of the Working Masses

A characteristic feature of colonial methods of exploitation, which ensures

high monopoly profits to the finance capital of the metropolitan countries, is
the combination of imperialist robbery with feudal and serf-owning forms of
exploitation of the working people. The development of commodity production
and extension of money relations, the expropriation of the bulk of the
indigenous population from the land and the breaking up of petty handicraft
productionall these processes take place alongside an artificial preservation
of feudal survivals and the introduction of methods of forced labour. As
capitalist relations develop, rent in kind gives place to money-rent and taxes in
kind to taxes payable in money, which still further hastens the ruin of the
peasant masses.
The ruling classes in the colonies and semi-colonies are the feudal
landlords and the capitalists, both urban and rural (kulaks). The capitalist class
is divided into the compradore bourgeoisie and the national bourgeoisie. The
compradores are native middlemen between the foreign monopolies and the
colonial markets, both for selling and for buying raw materials. The feudal
landlords and the compradore bourgeoisie are vassals of foreign finance
capital, direct mercenary agents of international imperialism, which holds the
colonies and semi-colonies in thrall. As the colonies develop their own
industries the national bourgeoisie grows in importance. It finds itself in a
position facing two ways: on the one hand, oppression by foreign imperialism
and feudal survivals bars its path to economic and political power, while on the
other hand it shares, together with the foreign monopolies, In the exploitation
of the working class and the peasantry. In the largest colonial and semi-
colonial countries monopolistic associations of local bourgeois exist, which are
dependent on the foreign monopolists. In so far as the national liberation
struggle is directed towards the overthrow of imperialist rule, the winning of
national independence for the country and the abolition of the feudal survivals
which hinder the development of capitalism, the national bourgeoisie at a
certain stage takes part in this struggle and plays a progressive role.
The working class grows in colonial and dependent countries as industry
develops and capitalist relations spread. Its advanced section is the industrial
proletariat. Part of the proletariat is also constituted by the agricultural
workers, workers in capitalist manufacture and small enterprises and urban
labourers engaged in all kinds of manual work.
The numerical bulk of the population of the colonies and semi-colonies
consists of peasants, and in the majority of these countries the overwhelming
mass of country-dwellers is made up of peasants who either are landless or
possess little landpoor peasants and middle peasants. The numerous urban
petty bourgeoisie is composed of small traders and craftsmen.
In addition to the concentration of landed property in the hands of the
landlords and usurers, extensive tracts of land are seized by the colonisers. In
a number of colonies imperialism has established plantation economy.
Plantations are large-scale agricultural enterprises for the production of
particular kinds of vegetable raw materials (cotton, rubber, jute, coffee, etc.)
they belong predominantly to the colonisers, and are based on a low level of
technique and the semi-slave labour of a population without human rights. In
the most densely populated of the colonial and dependent countries small-scale
peasant production predominates, entangled with survivals of feudalism and
relations of bond-slavery. In these countries the concentration of landed
property in the hands of the landlords is combined with small-scale land-
tenure.
The large landowners let out their land on lease, in small plots and on
extortionate terms. Widespread is the parasitic system of many-tiered sub-
letting, under which there insert themselves between the owner of the land
and the peasant who actually tills it, a number of intermediaries who exact a
considerable share of the crop from the cultivator. Share-farming
predominates. Usually the peasant is completely in the power of a landlord to
whom he stands in the relationship of one who owes an unpayable debt. In a
number of countries direct forms of labour-rent and work-payment exist:
landless peasants-,I are obliged to work for the landlord several days a week
for their lease or to repay a debt. Extreme want forces the peasants i to run
into debt, to fall into bondage and sometimes even into slavery to the money-
lenders; cases occur when peasants are, forced to sell members of their
families into slavery.

Before the establishment of British rule in India the State took part of the peasants
produce in the form of taxation. After the conquest of India the British authorities transformed
the collectors of State tribute into large landowners with estates hundreds of thousands of
acres in extent. About three-quarters of the rural population of India was left without any land
of its own. The peasant paid from half to two-thirds of his crop in rent, and out of what was left
he had to pay the money-lender interest in kind on the debts he had incurred. In Pakistan,
according to figures for the post-war years, 70 per cent of the entire cultivated area belongs to
50,000 large landlords.
In the countries of the Near East at the present time 75-80 per cent of the inhabitants
are engaged in agriculture. In Egypt 770 large landlords possess more land than the two
million poor peasant families whose holdings make up 75 per cent of the total number of
holdings; out of 14.5 million persons who live by agriculture, 12 million are small tenant
farmers and labourers, and rent absorbs up to four-fifths of their crop. In Persia about two-
thirds of the land belongs to the landlords and one-sixth to the State and the Moslem clergy;
the tenant keeps only a fifth or two-fifths of his crop. In Turkey over two-thirds of the peasants
are virtually without any land.
In the countries of Latin America the land is concentrated in the hands of large
landowners and foreign monopolies. Thus, for example, in Brazil, according to data from the
1940 census, 51 per cent of the holdings accounted for only 3.8 per cent of the land-area. In
the Latin-American countries the impoverished peasants are obliged to accept loans from the
landlords which they have to pay back by way of work-payments; under this system (so-called
peonage), debts are handed down from generation to generation and a peasants entire
family becomes in effect the property of the landlord. Marx called peonage a concealed form of
slavery.

A large share of the meagre product of the exhausting labour of a

peasant and his family is appropriated by various exploiters: landlords, money-
lenders, merchants, rural bourgeoisie, foreign capital, etc. They take from the
cultivator not only the product of his surplus labour but also a substantial part
of his necessary labour. The income which is left to the peasant is in many
instances insufficient even for an existence at starvation level. Many peasants
holdings go to rack and ruin and their former owners go to swell the ranks of
the rural labourers. The agrarian surplus-population attains vast dimensions.
Crushed by their bondage to landlords and usurers, the peasants are not
able to use on their holdings any but the most primitive technique, which has
remained essentially unchanged for hundreds, and in some cases thousands, of
years. A primitive technique of cultivating the land leads to extreme exhaustion
of the soil. In consequence of all this, many colonies which have remained
agrarian countries are not in a position to feed their inhabitants and are obliged
to import foodstuffs. The agriculture of lands enslaved by imperialism is
doomed to decline and degradation.

In these countries where agrarian surplus-population and land-hunger exist on a huge

scale, only a part of all the land suitable for cultivation is actually worked. In the countries of
the Near East the irrigation systems are neglected or in ruin. The yield from land which
formerly was considered amongst the most fertile in the world is exceptionally low, and is
continually falling. Partial failures of the harvest bring about the death from starvation of
millions of people.

Colonial oppression means for the working class lack, of all political rights
and predatory exploitation. The cheapness of labour-power is responsible for
the extremely low technical level of industrial enterprises and plantations. With
a backward technique of production huge profits are secured by the
monopolies through lengthening of the working days, intensification of labour
and extremely low wages.
The working day in the colonies attains 14 to 16 hours or even more. As
a rule no measures are taken to ensure safety at work in industrial enterprises
or on the transport system. The very worn-out state of equipment and the
unwillingness of employers to spend anything on repairs and on safety
measures}: result in frequent accidents, which kill or cripple hundreds of
thousands of people. The absence of any social legislation deprives the worker
of any means of existence should he find himself unemployed, injured at work
or the victim of an occupational disease.
The wages of colonial workers are inadequate to provide\ them with even
the necessities of life. The workers have to pay out a certain proportion of their
wretchedly low wages to all sorts of middlemencontractors, foremen,
overseerswho are responsible for hiring the labour force. The labour of
women and of children from the age of six or seven is widely used, and is paid
at even lower rates than that of the men workers. The majority of the workers
are entangled in a network of debt slavery. In many instances the workers live
in special barracks or camps, as prisoners, deprived of the right of free
movement. Forced labour is openly used on a large scale, both in agriculture
and in industry.
Extreme economic backwardness combined with a high level of exploitation
dooms the colonial peoples to hunger and poverty. A vast share of the wealth
created in the colonies is taken without compensation by the largest
monopolies of the imperialist States. As a result of the exploitation of the
colonies and the retardation of the development of their productive forces, the
national income calculated per head of the population is only one-tenth or one-
fifteenth of what it is in the metropolitan countries. The standard of living of
the overwhelming mass of the population is very low. The death-rate is
extraordinarily high: hunger and epidemics lead to the extinction of the
inhabitants of entire districts.

In the African colonies slavery is officially recognised. The authorities carry out round-
ups of the Negroes; the police surround villages and despatch the people they capture to build
roads or to work in the cotton and other plantations, etc. In colonial countries bond-slavery is a
commonplace phenomenon; this existed also in pre-revolutionary China. The selling of children
into slavery is also widespread.
Racial discrimination in regard to wages prevails in the colonies. In French West Africa a
worker belonging to the indigenous population, though skilled, receives only a quarter or a
sixth of the wages paid to a European worker with the same qualifications. In the Belgian
Congo African mineworkers are paid a fifth or a tenth of the wages received by European
workers. In the Union of South Africa 65 per cent of the children of the native population die
before reaching their second year.

The National Liberation Struggle of the Colonial Peoples

Before the epoch of imperialism the national question affected only a

few, mainly European, nations (the Irish, Hungarians, Poles, Finns, Serbs, and
others) and was confined to the territories of a few multi-national States. In
the epoch of imperialism, when the finance capital of the metropolitan
countries has enslaved the peoples of the colonial and dependent countries,
the scope of the national question has been extended, and in the very course
of events it becomes merged with the general question of colonies.

The national question was thereby transformed from a particular

and internal State problem into a general and international problem, into
a world problem of emancipating the oppressed people of the dependent
countries and colonies from the yoke of imperialism. (Stalin,
Foundations of Leninism, Works, English edition, vol. VI, p. 144.)

The only way by which these peoples can free themselves from the
burden of exploitation is their revolutionary struggle against imperialism.
Throughout the entire epoch of capitalism the peoples of the colonial countries
have fought against foreign enslavement, frequently breaking out in revolts
which were cruelly put down by the colonisers. In the period of imperialism the
struggle of the peoples of the colonial and dependent countries for liberation
assumes unprecedented dimensions.
Already at the beginning of the twentieth century, especially after the
first Russian Revolution of 1905, the working masses of the colonial and
dependent countries were awakened to political life. Revolutionary movements
arose in China Korea, Persia and Turkey.
The countries of the colonial world differ among themselves in their level
of economic development and in the degree to which a proletariat has been
formed within them. Three categories, at least, of colonial and dependent
countries must be distinguished: (1) countries which are completely
undeveloped from the industrial standpoint, and possess no proletariat or
hardly any; (2) countries which are not much developed industrially and have a
comparatively small proletariat; (3) countries which are more or less developed
on capitalist lines and which have a more or less numerous proletariat. This
distinction determines the special features assumed by the national liberation
movement in the various colonial and dependent countries.
In so far as the population in the colonial and dependent countries is
composed preponderantly of peasants, the national and colonial question is in
essence a peasant question. The common aim of the national liberation
movement in the colonies and dependent countries is liberation from the rule
of imperialism and abolition of all feudal survivals. For this reason every
national liberation movement in the colonies and dependent countries which is
directed against imperialism and feudal oppression is progressive in character,
even if in the countries concerned the proletariat is only slightly developed.
The national liberation movement in the colonies and dependent
countries, in which the proletariat is playing an ever-greater role as
acknowledged leader of the broad masses of the peasantry and all the working
people, draws into struggle against imperialism the gigantic majority of the
worlds population which is oppressed by the finance oligarchies of a few of the
biggest capitalist Powers. The interest of the proletarian movement in the
developed capitalist countries and those of the national liberation movement in
the colonies demand that these two forms of the revolutionary movement be
united in a common fighting front against their common enemy, imperialism.
Proletarian internationalism proceeds from the fact that no people which
oppresses other peoples can itself be free. And, as Leninism teaches, real
support by the proletariat of the ruling nations to the liberation movement of
the oppressed peoples means support, defence and implementation of the
slogan of the right of nations to separation and to independent State existence.
The growth of the national liberation struggle of the oppressed peoples of
the colonies and dependent countries saps the foundations of imperialism and
prepares its downfall.

BRIEF CONCLUSIONS
(1) Unrestrained exploitation of colonies and semi-colonies is one of the
characteristic features of monopoly capitalism. The maximum profits of the
monopolies are inseparably connected with the exploitation of colonies and
semi-colonies as markets, as sources of raw material, spheres of investment of
capital and reservoirs of cheap labour-power. Demolishing pre-capitalist forms
of production and evoking the accelerated growth of capitalist relations,
imperialism permits, however, only such a development of the economy of the
colonies and dependent countries as will deprive them of economic and political
independence. The colonies serve as agrarian raw-material appendages to the
metropolitan countries.
(2) Characteristic of the colonial system of imperialism is the
interweaving of capitalist exploitation and robbery with sundry survivals of
feudal and even of slave-owning oppression. Finance-capital artificially
maintains survivals of feudalism in the colonies and dependent countries, and
introduces forced labour and slavery there. Penal conditions of labour, with an
extremely low standard of technique, complete lack of rights, ruin and
impoverishment, hunger and mass extinction are the lot of the working class
and the peasantry in the colonial and semi-colonial countries.
(3) The intensifying of colonial exploitation and oppression inevitably
calls forth resistance by the broadest masses of the population in the colonial
and dependent countries. The national liberation movement of the enslaved
peoples draws into struggle against imperialism the gigantic majority of the
worlds population, undermines the foundations of imperialism and prepares its
downfall.
 CHAPTER XX

THE PLACE OF IMPERIALISM IN HISTORY

Imperialism-the Last Stage of Capitalism

Defining the place of imperialism in relation to capitalism in general,

Lenin wrote:

Imperialism is a specific historical stage of capitalism. Its specific

character is three-fold: imperialism is (1) monopoly capitalism; (2)
parasitic or decaying capitalism; (3) moribund capitalism. (Lenin,
Imperialism and the Split in Socialism, Selected Works, 12-vol. edition,
vol. XI, p. 748.)

Monopoly capitalism does not and cannot eliminate the foundations of

the old capitalism. In a certain sense it is a superstructure upon the old, pre-
monopoly capitalism. Just as there is not and cannot be any pure capitalism,
so the existence of pure imperialism is unthinkable. Even in the most highly
developed countries a host of small and medium enterprises exist alongside
the monopolies, especially in light industry, agriculture, trade and other
branches of the economy. In nearly all capitalist countries a considerable part
of the population is composed of peasants, the bulk of whom carryon simple
commodity production. In the colonial and semi-colonial countries imperialist
oppression is interwoven with pre-capitalist and especially feudal forms of
exploitation.
The essential peculiarity of imperialism is that monopolies exist alongside
of the market, competition and crises. Inasmuch as imperialism is the
continuation and development of the basic features of capitalism, to that
extent the economic laws of capitalism generally are retained in the monopoly
phase of capitalism. But in connection with the change in the economic
conditions and the extreme sharpening of all the contradictions of capitalism,
these laws undergo further development, and they operate with increasing
destructive force. This applies to the laws of value and surplus-value; to the
law of competition and anarchy of production; to the general law of capitalist
accumulation, which causes the relative and absolute impoverishment of the
working class and dooms the bulk of the working peasantry to impoverishment
and ruin; to the contradictions of capitalist reproduction and to economic
crises.
Monopolies bring the socialisation of production to the highest level
possible under capitalism. Large and very large enterprises, in each of which
thousands of people are employed, produce a substantial share of the total
production in the most important branches of industry. The monopolies link
together huge enterprises, allot markets and sources of raw material,
assemble under their command bodies of scientific workers, control inventions
and technical improvements. The big banks have nearly all the money
resources of the country under their control. The links between the various
branches of the economy, and their interdependence, increase tremendously.
Industry, with gigantic productive capacities at its disposal, is able rapidly to
increase the quantity of goods produced.
Meanwhile, the means of production remain the private property of the
capitalists and a decisive share of the means of production belongs to a small
handful of monopolists. In their drive for maximum profit the monopolies raise
by all means in their power the level of exploitation of the working class, which
leads to an intensified impoverishment of the working masses and a reduction
in their purchasing power.
Thus, the domination of monopoly sharpens to the uttermost the basic
contradiction of capitalismthe contradiction between the social character of
production and the private capitalist form in which the results of production are
appropriated. It becomes ever more obvious that the social character of the
process of production demands social ownership of the means of production.
In the imperialist epoch societys productive forces have attained such a
level of development that they are constricted by the narrow framework of
capitalist production-relations. Capitalism, which replaced feudalism as a more
progressive mode of production, has been transformed in its imperialist phase
into a reactionary force which holds back the development of human society.
The economic law of the obligatory correspondence of the relations of
production to the character of the productive forces demands the replacement
of capitalist relations of production by new, socialist relations. This law
encounters the most violent resistance on the part of the ruling classes, and
above all of the monopolist bourgeoisie and the large landowners, who strive to
prevent the working class from forming an alliance with the peasantry and
overthrowing the bourgeois system.
The high level of development of the productive forces and the
socialisation of production, the deepening and sharpening of all the
contradictions of bourgeois society, testify to the fact that capitalism, having
arrived at the last phase of its development, is fully ripe for replacement by a
higher social order -socialism.

Imperialism as Parasitic or Decaying Capitalism

Imperialism is parasitic or decaying capitalism. The domination of

monopolies which strive to obtain maximum profits inevitably engenders a
tendency to stagnation and decay. Monopolies, being in a position to dictate
what prices shall prevail on the market and to maintain them artificially at a
high level, are by no means always interested in introducing technical
innovations. Quite often, monopolies hinder technical progress; they keep back
for years on end very great scientific discoveries and technical inventions.
Thus, monopolies have an inherent tendency toward stagnation and
decay, and in certain conditions this tendency comes to the top. This
circumstance does not in any way rule out, however, a comparatively rapid
growth of production and development of technique in certain branches of
bourgeois economy in particular capitalist countries. But this growth takes
place extremely unevenly, and lags further and further behind the tremendous
possibilities opened up by modern science and technique.
The highly developed technique of the present day is bringing forward immense tasks,
fulfilment of which encounters obstacles arising from capitalist production relations. Capitalist
countries are unable, for example, to make full use of their hydro-electric resources owing to
the obstacles put in the way by private ownership of land and the domination of the
monopolies. The monopoly of private property in land, agrarian surplus-population in the
countryside and the predominance of small peasant holdings hinder the introduction of the
achievements of modern science and technique into agriculture, though this does not rule out
technical progress in a number of large capitalist agricultural enterprises. The interests of the
capitalist monopolies, are obstacles to the utilisation of atomic energy peaceful purposes.

Wherever you look, wrote V.I. Lenin as long ago 1913, you
encounter at every step tasks which mankind is fully competent to carry
out immediately. Capitalism stands in the way. It has accumulated
hoards of richesand made men the slaves of these riches. It has solved
the most complex of technical problemsand blocked the practical
applications of technical improvements owing to the poverty and
ignorance in which millions of people live and the stupid niggardliness of
the handful of millionaires. (Lenin Civilised Barbarism, Works, Russian
edition, vol. XIX, p. 349.).

The decay of capitalism is expressed in the growth of parasitism. The

capitalist class loses all connections with the process of production. The
management of enterprises is concentrated in the hands of hired technical
staff. The over-whelming majority of the bourgeois and landlords are
transformed into rentierspersons who own securities and live on income from
these securities (coupon-clipping). The parasitic consumption of the exploiting
classes grows.
The absolutely complete divorcement of the rentier strata from
production is still further enhanced by the export of capital, by income from
overseas investments. The export of capital sets a mark of parasitism on an
entire country which lives by exploiting the peoples of other countries and
colonies. The capital invested abroad forms a continually increasing proportion
of the national wealth of the imperialist countries, and incomes from this
capital an ever increasing element in the income of the capitalist class. Lenin
called the export of capital parasitism squared.

Capital invested abroad amounted in 1929 to the following proportions of the national
wealth of various countries: Britain-18 per cent, France-15 per cent, Holland-about 20 per
cent, Belgium and Switzerland-nearly 12 per cent each.
In the U.S.A. the income derived by rentiers from their securities amounted in 1913 to
1.8 milliard dollars and in 1931 to 8.1 milliard; which was 1.4 times the amount of the total
gross money income of the 30-million strong farming population in the same year. The U.S.A.
is a country where the parasitic features of modern capitalism, no less than the predatory
nature of imperialism, are especially vividly evident.

The parasitic character of imperialism is plainly visible in the fact that a

number of bourgeois countries have become transformed into rentier-States.
By means of enslaving loans the biggest imperialist countries draw enormous
revenues from the debtor countries and subject them both economically and
politically. The rentier-State is the State of parasitic, decaying capitalism.
Exploitation of the colonies and dependent countries, which is one of the main
sources of the maximum profits of the monopolies, turns a handful of the
richest capitalist countries into parasites on the body of the oppressed peoples.
The parasitic character of imperialism is expressed in the growth of
militarism. A continually increasing share of the national income, and
principally of the incomes of the working people, is drawn into the State
Budget and spent on the upkeep of huge armies, on the preparation and
conduct of imperialist wars. Militarisation of the economy and imperialist wars,
which are among the principal methods whereby the monopolies secure
maximum profits, are at the same time responsible for the destruction of great
numbers of human lives and vast quantities of material wealth.
Inseparably connected with increased parasitism is the fact that huge
masses of people are divorced from socially-useful work. The army of
unemployed grows and the number of persons engaged in services to the
exploiting classes increases, as also of those in the machinery of State and in
the incredibly inflated sphere of circulation.
The decay of capitalism is further shown in the bribing by the imperialist
bourgeoisie, out of its profits from the exploitation of the colonies and
dependent countries, of a small upper stratum of skilled workersthe so-called
labour aristocracyby means of higher wages and other sops. With the
bourgeoisies backing, the labour aristocracy seizes the leading positions in a
number of trade unions; it forms, along with petty-bourgeois elements, the
active core of the right-wing Socialist parties and constitutes a serious danger
to the working-class movement. This stratum of workers who have become
bourgeois is the social basis of opportunism.
Opportunism in the labour movement means the adaptation of the labour
movement to the interests of the bourgeoisie, through undermining the
proletariats revolutionary struggle to free itself from capitalist slavery. The
opportunists poison the workers minds with their preaching of the reformist
road of improving capitalism, and they call on the workers to support the
bourgeois governments in their imperialist policies, at home and abroad.
The opportunists essentially play the part of agents of the bourgeoisie in
the labour movement. By splitting the ranks of the working class the
opportunists prevent the workers from uniting their forces to overthrow
capitalism. This is one of the reasons why the bourgeoisie still continues to
hold power in many countries.
To pre-monopoly capitalism with its free competition, there corresponded
as political superstructure a limited bourgeois democracy. Imperialism, with its
monopoly domination, is marked by a turn from democracy to political reaction
in both the home and external policies of bourgeois States. Political reaction all
along the line is inherent in imperialism. The heads of the monopolies or their
henchmen occupy the principal posts in the governments and in the whole of
the State service. Under imperialist conditions governments are put in office
not by the people but by the magnates of finance capital. The reactionary
monopolist groups, to consolidate their power, try to reduce to naught the
democratic rights of the working people which have been won through
stubborn struggle by many generations. This makes necessary a stiffening to
the utmost of the struggle of the masses for democracy against imperialism
and reaction.

Capitalism in general and imperialism in particular make

democracy an illusionand at the same time capitalism arouses
democratic strivings among the masses creates democratic institutions,
renders acute the antagonism between imperialism, which rejects
democracy, and the masses who are striving for democracy. (Lenin,
Works, Russian edition, vol. XXIII, p. 13.)

In the epoch of imperialism the struggle waged by the broadest masses

of the people, led by the working class, against the reaction engendered by the
monopolies is of very great historical importance. Upon the activity,
organisation and resoluteness of the masses of the people depends the
frustration of the anti-human plans of the aggressive forces of imperialism,
which are continually preparing new hardships and war-disasters for the
peoples.

Imperialism as the Eve of the Socialist Revolution

Imperialism is moribund capitalism. It sharpens all the contradictions of

capitalism, bringing them to the last borderline, the extreme limits, beyond
which revolution begins. The most important of these contradictions are the
three following.
First the contradiction between labour and capital. The dominance of
monopoly and the finance oligarchy in the capitalist countries leads to
increasing the degree of exploitation of the working people. The worsening of
the material position and the increased political oppression of the working class
make it more discontented and bring about a sharpening of the class struggle
between proletariat and bourgeoisie. In these conditions, the former methods
of economic and political struggle of the working class are found to be
completely inadequate. Imperialism brings the working class in real earnest to
the socialist revolution.
Secondly, the contradiction between the imperialist Powers. In the
struggle for maximum profits the monopolies of the different countries come
into collision with one another, each of the groups of capitalists endeavouring
to secure preponderance for itself through seizure of markets, sources of raw
material and spheres of investment of capital. The bitter struggle for spheres of
influence which the imperialist countries carry on among themselves inevitably
leads to imperialist wars, which weaken the position of imperialism,
intensifying the discontent of the masses and urging them along the road of
revolutionary struggle against the capitalist system.
Thirdly, the contradiction between the oppressed peoples of the colonies
and dependent countries and the imperialist Powers which exploit them. As a
result of the intensifying of imperialist oppression and also of the development
of capitalism in the colonies and semi-colonies the national liberation
movement against imperialism grows. The colonies and dependent countries
are transformed from reserves of imperialism into reserves of the proletarian
revolution.
These principal contradictions are characteristic of imperialism as
moribund capitalism. This does not mean that capitalism can die by itself,
through automatic collapse without resolute struggle by the masses of the
people, headed by the working class, to abolish bourgeois rule. It only means
that imperialism is the stage of capitalisms development at which proletarian
revolution has become really inevitable, and favourable conditions have
matured for a direct onslaught on the citadel of capitalism. For this reason
Lenin called imperialism the eve of the socialist revolution.

State-monopoly Capitalism

In the epoch of imperialism the bourgeois State, which is a dictatorship

of the finance oligarchy, conducts all its activities in the interests of the ruling
monopolies.
As the contradictions of imperialism become more acute, the ruling
monopolies increase their direct control of the State machine. Ever more
frequently one finds the biggest magnates of capital appearing in the role of
heads of the State machine. A process of transforming monopoly capitalism
into State-monopoly capitalism takes place. The first world war already
accelerated and intensified this process to an extraordinary degree.
State-monopoly capitalism means the subjection of the State machine to
the capitalist monopolies and their using it to interfere in the countrys
economy (especially in connection with militarisation of the economy), in order
to secure maximum profits for themselves and consolidate the all-powerful
position of finance capital. As part of this process, various enterprises,
branches of the economy and economic functions are transferred to the
bourgeois State (supply of labour-power, of raw materials which are in short
supply, rationing products, construction of arms factories, financing the
militarisation of the economy, etc.), while the predominance in the country of
private ownership of the means of production is preserved.
State ownership in imperialist countries arises either as a result of the
building of factories, railways, arsenals, etc., at State expense or as a result of
bourgeois nationalisation, i.e., the transfer of certain private enterprises to the
State, against lavish compensation. Contrary to the assertions of bourgeois
economists, who depict the State ownership of enterprises under the political
rule of the bourgeoisie as a step towards socialism, this has nothing in
common with socialism. State ownership in bourgeois countries is a variant of
capitalist ownership, with the owner in this case not any individual capitalist
but the bourgeois State, which is subject to a handful of big monopolists. The
State ownership of enterprises is used by the monopolists to intensify the
exploitation of the working class and all the working people, to increase their
profits.
The monopolies make use of the state power to promote actively the
concentration and centralisation of capital and to strengthen the might and the
influence of the biggest monopolies. The State takes special measures to
compel independent enterprises to subordinate themselves to the monopoly
groupings, and in wartime carries out compulsory concentration of production,
closing down a large number of small and medium enterprises. In the interests
of the monopolies the State, on the one hand, imposes high customs duties on
imported, goods and on the other encourages the export trade, paying export
subsidies to the monopolies and helping them to conquer fresh markets by
means of dumping.
The monopolies use the State Budget to plunder the inhabitants of their own
countries through taxation, and also to receive contracts from the State which
bring them huge profits. On the pretext of encouraging business. initiative
the bourgeois State pays out enormous sums to the biggest employers in the
form of subsidies. Should the monopolies be in danger of bankruptcy they
receive from the State the means to cover their losses, and their tax
indebtedness to the State is written off.
The development of State-monopoly capitalism becomes especially
intense in periods of preparation for imperialist wars and during such wars.
Lenin called war-time State-monopoly capitalism military penal servitude for
the workers and paradise for the capitalists. The governments of the imperialist
countries give the monopolies enormous contracts for the supply of arms,
equipment and provisions, build arms factories at public expense and then
hand them over to the monopolies, and float war loans. At the same time, the
bourgeois States transfer all the burdens of war on to the working people. All
this secures colossal profits to the monopolies.
The development of State-monopoly capitalism, leads first, to a very
marked speeding-up of capitalist socialisation of production, creating the
material premises for the replacement of capitalism by socialism. Lenin pointed
out that State-monopoly capitalism is the most complete material preparation
for socialism.
The development of State-monopoly capitalism leads, secondly, to
enhanced relative and absolute impoverishment of the proletariat. With the aid
of the State power, the monopolies screw up by all possible means the degree
of exploitation of the working class, the peasantry and broad strata of the
intelligentsia, and this leads inevitably to extreme sharpening of the
contradiction between exploiters and exploited.
Defenders of capitalism, concealing the subordination of the bourgeois
State to the capitalist monopolies, allege that the State has become the
decisive force in the economy of the capitalist countries and is able to secure
planned management of the national economy. But in fact the bourgeois State
cannot manage the economy on planned lines, for the economy is not under its
control but in the grip of the monopolies. State regulation of the economy,
carried out in the interests of monopoly capital, cannot eliminate the anarchy
of capitalist economy and economic crises and leads in practice to a further
sharpening of the contradictions of the bourgeois system.

The Law of Uneven Economic and Political Development of

the Capitalist Countries in the Period of Imperialism and the
Possibility of the Victory of Socialism in a Single Country
 Under capitalism it is impossible for the separate enterprises and
branches of a countrys economy to develop in even fashion. Under conditions
of competition and anarchy of production uneven development of capitalist
economy is inevitable. But in the pre-monopoly epoch, production was split up
among a large number of enterprises, there was free competition, and
monopolies did not exist. Capitalism could still develop comparatively smoothly.
Certain countries went ahead of others over a prolonged period. There existed
in the world in those days extensive territories which belonged to no one.
Things proceeded without armed clashes on a world scale.
This situation underwent radical change with the transition to monopoly
capitalism, when the division of the world among the imperialist powers had
been completed and they were carrying on a sharp struggle for redivision of
the world. At the same time an unprecedented development of technique
opened for certain imperialist countries the possibility of overtaking rapidly, by
leaps and bounds, the other imperialist countries. Countries which had taken
the path of capitalist development later than others utilised the ready-made
results of technical progress-machinery, production methods, etc. Hence a
more rapid development, by leaps and bounds, of some countries alongside a
slowing-down in the growth of others. This development in the form of leaps
and bounds is also enhanced to a tremendous extent by the export of capital.
It becomes possible for some countries to overtake and surpass others, crowd
them out of the markets, and carry out by armed force are-division of the
already divided world. In the period of imperialism the unevenness of
development. of the capitalist countries has been transformed into a decisive
factor of imperialist development.
The relation of economic forces among the imperialist Powers changes
with unprecedented rapidity. In consequence, the balance of military power
among the imperialist States changes in a very uneven manner. The changing
relation of economic and armed forces comes into conflict with the old
distribution of colonies and spheres of influence. This inevitably gives rise to a
struggle to re-divide the already divided world. The actual strength of the
various imperialist groups is tested by way of bloody and devastating wars.

In 1860 first place in the worlds industrial production was occupied by Britain, with
France as runner-up. Germany and the U.S.A. were then only just entering the world arena. A
decade passed, and a rapidly growing country of young capitalism, the U.S.A. had outstripped
France and changed places with her. In another decade the U.S.A. had outstripped Britain and
established itself in the leading position in world industrial production, while Germany had
overtaken France and taken third place after the U.S.A. and Britain. Towards the beginning of
the twentieth century Germany ousted Britain and took second place after the U.S.A. As a
result of the change in the relation of forces between the capitalist countries the capitalist
world was split into two hostile camps and world wars began.

The unevenness of the development of the capitalist countries causes a

sharpening of the contradictions in the imperialist camp and makes armed
clashes inevitable, which results in the imperialists weakening one another. The
world front of imperialism becomes easily vulnerable to the proletarian
revolution. This provides the basis for a breach to be made in the front at that
link where the chain of the imperialist front is weakest, at that point where the
most favourable conditions for the victory of the proletariat are found together.
The unevenness of economic development in the epoch of imperialism
gives rise to unevenness of political development as well, which means that the
political premises for the proletarian revolution come to ripeness at different
times in different countries. Foremost among these premises are the acuteness
of class contradictions and the level of development of the class struggle, the
degree of class consciousness, the extent to which the proletariat is organised
politically and filled with revolutionary resolution, and the ability of the
proletariat to draw the bulk of the peasantry after it.
The law of the uneven economic and political development of the
capitalist countries in the period of imperialism constitutes the starting-point of
Lenins teaching on the possibility of the victory of socialism first of all in a few
countries, or even in a single country.
Marx and Engels, studying pre-monopoly capitalism in the middle of the
nineteenth century, came to the conclusion that socialist revolution could
triumph only simultaneously in all civilised countries or at least in the majority
of them. At the beginning of the twentieth century, however, particularly in the
period of the first world war, the situation changed radically. Pre-monopoly
capitalism had grown into monopoly capitalism. Ascending capitalism had been
transformed into descending, dying capitalism. The war had revealed the
incurable weaknesses of the world imperialist front. At the same time the law
of uneven development had predetermined that proletarian revolution in the
different countries would mature at different times. Proceeding from the law of
uneven development capitalism in the imperialist epoch, Lenin came to the
conclusion that the old formula of Marx and Engels no long corresponded to the
new historical conditions, that in the new conditions socialist revolution could
quite well triumph in a single country, that a simultaneous victory of socialist
revolution in all countries or in the majority of civilised countries was
impossible owing to the uneven maturing of the revolution in these countries.

Uneven economic and political development, wrote Lenin, is an

absolute law of capitalism. Hence, the victory of socialism is possible first
in several or even in one capitalist country, taken singly. (Lenin, On the
United States of Europe Slogan, Selected Works, 1950, English edition,
vol. I, Pt. 2, PP.416-17.)

This was the new, conclusive theory of socialist revolution created by

Lenin. It enriched Marxism and advanced it, opened a revolutionary prospect
before the proletarians of the separate countries, released their initiative in the
attack upon their own bourgeoisie, and strengthened their confidence in the
victory of the proletarian revolution.
The imperialist period sees the completed formation of the capitalist
system of world economy, in which the separate countries become so many
links in a single chain. Leninism teaches that in the conditions of imperialism
socialist revolution is victorious first, not necessarily in those countries where
capitalism is furthest developed and the proletariat constitutes the majority of
the population, but in those countries which are weak links in the chain of
world imperialism. The objective conditions for socialist revolution have
matured in the system of world capitalist economy as a whole. This being so,
the existence within this system of countries which are insufficiently developed
from the industrial standpoint cannot represent an obstacle to revolution. For
socialist revolution to be victorious it is necessary that there should be present
a revolutionary proletariat and a proletarian vanguard united in a political
party, that there should be in the given country a solid ally of the proletariat, in
the shape of the peasantry, capable of following the proletariat in resolute
struggle against imperialism.
In the epoch of imperialism, when the revolutionary movement is
growing throughout the world, the imperialist bourgeoisie takes its stand in
alliance with all reactionary forces without exception and uses survivals of
serfdom in every possible way to strengthen its rule and enlarge its profits. For
this reason, abolition of the feudal serf-owning order is impossible without a
resolute struggle against imperialism. In these conditions the hegemony of the
proletariat in the bourgeois-democratic revolution, welding the mass of the
peasantry around itself for struggle against feudal survivals and imperialist
colonial oppression, becomes possible. As its anti-feudal and national-liberation
tasks are accomplished, bourgeois-democratic revolution grows into socialist
revolution.
In the imperialist period the discontent of the proletariat grows in the
capitalist countries, the elements of a revolutionary explosion accumulate, and
in the colonial and dependent countries a war of liberation against imperialism
develops. Imperialist wars for the re-division of the world weaken system of
imperialism and strengthen the tendency for proletarian revolutions in the
capitalist countries to unite with national liberation movement in the colonies.
Proletarian revolution which has triumphed in a single country is at the
same time the beginning of the world socialist revolution. Lenin scientifically
foresaw that world revolution would develop through the revolutionary falling
away of series of further countries from the system of imperialism, with
support rendered to the proletariat of these countries by the proletariat of the
imperialist States. The process of the falling away from imperialism of a series
of further countries will itself take place the faster and more thoroughly, the
more thoroughly socialism is consolidated in the countries of the victorious
proletarian revolution.

In the last analysis, the outcome of the struggle, wrote Lenin in

1923, will be determined by the fact that Russia, India, China, etc.,
account for the overwhelming majority of the population of the globe.
And it is precisely this majority that during the past few years has been
drawn into the struggle for emancipation with extraordinary rapidity so
that in this respect there cannot be the slightest shadow of doubt what
the final outcome of the world struggle will be. In this sense the
complete victory of Socialism is fully and absolutely guaranteed. (Lenin,
Better less but better, Selected Works, 1950, edition, vol. II, Pt. 2, p.
750.)

BRIEF CONCLUSIONS
 (1) Imperialism is: (1) monopoly capitalism, (2) decaying or parasitic
capitalism, (3) moribund capitalism, the eve of the Socialist revolution.
(2) The decay and parasitism of capitalism are expressed in the
retardation by the monopolies of technical progress and the growth of the
productive forces, in the transformation of a number of bourgeois countries
into rentier-States which live by exploiting the peoples of the colonies and
dependent countries, in an orgy of militarism, in an increase in the parasitic
consumption of the bourgeoisie, in reactionary internal and external policies of
the imperialist States, and in the bribing by the bourgeoisie of the imperialist
countries of a small upper stratum of the working class. The decay of
capitalism leads to intensified impoverishment of the working class and of the
working masses of the peasantry.
(3) Imperialism renders three major contradictions of capitalism
extremely acute: (1) the contradiction between labour and capital, (2) the
contradiction between the imperialist Powers struggling for preponderance and,
in the last analysis, for world power, and (3) the contradiction between the
metropolitan countries and the colonies. Imperialism finally brings the
proletariat to the threshold of socialist revolution.
(4) State-monopoly capitalism means the subordination of the State
machine to the capitalist monopolies and the use of it for: interference in the
economic life of the country (especially in connection with its militarisation),
with the aim of securing maximum profits and consolidating the rule of the
finance oligarchy. While signifying the highest stage of capitalist socialisation of
production, State-monopoly capitalism brings with it further intensification of
the exploitation of the working class, impoverishment and ruin of the broad
working masses.
(5) The law of uneven economic and political development of the
capitalist countries in the period of imperialism weakens the front of world
imperialism. The unevenness with which revolution matures rules out the
possibility of a simultaneous victory of socialism in all countries or in the
majority of countries. It is made possible for the imperialist chain to be broken
at its weakest link, possible for socialist revolution to triumph first of all in a
few countries, or even in. a single country.
 CHAPTER XXI

THE GENERAL CRISIS OF CAPITALISM

Nature of the General Crisis of Capitalism

As the contradictions of imperialism grew, so the preconditions for the

general crisis of capitalism accumulated. The foundations of the theory of the
general crisis of capitalism were worked out by V. I. Lenin.
The general crisis of capitalism is the all-round crisis of the world
capitalist system as a whole, characterised by wars and revolutions, by a
struggle between moribund capitalism and growing socialism. The general
crisis of capitalism involves all sides of capitalism, both economic and political.
Underlying it are, on the one hand, the ever more intense disintegration of the
world capitalist system, from which more and more countries are falling away,
and, on the other hand, the growing economic might of the countries which
have already fallen; away from capitalism.
The fundamental features of the general crisis of capitalism are: the
splitting of the world into two systems, the capitalist and the socialist, the crisis
of the colonial system of imperialism, the sharpening of the problem of
markets and, in connection with this, the increase of chronic under-capacity
working of enterprises and chronic mass unemployment in the capitalist
countries.
The uneven development of the capitalist countries in the epoch of
imperialism gives rise in course of time to a lack of correspondence between
the existing division of markets, spheres of influence and colonies and the
changed relation of forces among the principal capitalist States. On this basis
there arises a sharp break in the equilibrium within the world system of
capitalism, leading to the formation of hostile groupings of capitalist States and
to war between these groupings. World wars sap the strength of imperialism
and facilitate the breaching of the imperialist front and the falling away of one
country after another from the capitalist system.
The general crisis of capitalism covers an entire period of history, forming
part of the epoch of imperialism. As already mentioned, the law of uneven
economic and political development of the capitalist countries in the imperialist
epoch predetermines a variation in the time when socialist revolution becomes
ripe in different countries. Lenin pointed out that the general crisis of
capitalism is not an event which takes place in a single moment of time but a
long period of stormy economic and political upheavals and sharp class
struggle, a period of the collapse of capitalism on its full scale, and the birth of
a socialist society. (Lenin, Report on the Revision of the Programme and
Change of the Name of the Party, at the VIIth Congress of the R.C.P.(B),
Selected Works, 12-vol. edition, vol. VIII, p. 315.) This determines the
historical inevitability of a prolonged co-existence of the two systemssocialist
and capitalist.
The general crisis of capitalism began in the period of the first world war
and developed especially as a result of the falling away of the Soviet Union
from the capitalist system. This was the first stage of the general crisis of
capitalism. In the period of the second world war the second stage of the
general crisis of capitalism developed, especially after the falling away from the
capitalist system of the Peoples Democracies in Europe and Asia.

The First World War and the Beginning of the General Crisis
of Capitalism

The first world war was the result of the sharpening of contradictions
between the imperialist Powers arising out of the struggle to re-divide the
world and spheres of influence. Alongside the old imperialist Powers new ones
had grown up which had been too late for the partition of the world. German
imperialism appeared on the scene. Germany had taken the path of capitalist
development later than a number of other countries and arrived to join in the
share-out of markets and spheres of influence when the world was already
divided up among the old imperialist Powers. As early as the beginning of the
twentieth century, however, Germany, having outstripped Britain as regards the
level of industrial development, took second place in the world and the first in
Europe. Germany began to squeeze Britain and France out of the world
markets. The change in the relation of forces, economic and military, between
the principal capitalist States brought to the front the question of re-dividing
the world. In the struggle for the re-division of the world, Germany, taking her
stand in alliance with Austria-Hungary, clashed with Britain, France and Tsarist
Russia, which was dependent on them.

Germany strove to take away part of the British and French colonies, to oust Britain
from the Near East and to put an end to her maritime supremacy, to take from Russia the
Ukraine Poland and the Baltic regions, and to bring under subjection the whole of Central and
South-eastern Europe. In its turn, Britain strove to put an end to German competition on the
world market and to establish firmly its dominion over the Near East and the continent of
Africa. France set out to recover Alsace and Lorraine, annexed by Germany in 1871, and to
grab the Saar basin from Germany. Predatory aims were also pursued by Tsarist Russia and
other bourgeois States which took part in the war.

The struggle between the two blocs of imperialists, the Anglo-French and
the German, for the re-division of the world affected the interests of all the
imperialist countries and so led to a world war in which Japan, the U.S.A. and a
number of other countries took part. The first world war was imperialistic on
both sides.
The war shook the capitalist world to its very foundations. In the scale on
which it was fought it threw into the shade all previous wars in the history of
mankind.
The war provided the monopolies with a source of enormous enrichment.
The capitalists of the U.S.A. did especially well out of it. The profits of the
American monopolies as a whole in 1917 were three or four times what they
had been in 1914. In the five years of the war (1914 to 1918) the American
monopolies received more than 35 milliard dollars profit (before deduction of
tax). The biggest monopolies increased their profits tenfold.
 The population of the countries which actively participated in the war amounted in all to
about 800 million. About 70 million men served in the armies. The war swallowed up as many
human lives as had perished in all wars in Europe during the previous thousand years. The
number of killed was 10 million, the number of wounded and maimed exceeded 20 million.
Millions of people died from famine and epidemics. The war brought colossal damage to the
economies of the fighting countries. The direct war expenses of the combatant Powers
amounted for the whole period of the war (1914-18) to 208 milliard dollars (in the prices of
those years).
During the war the role played by the monopolies grew ever greater and the subjection
of the State machine to them was increased. The State machine was utilised by the biggest
monopolies for the purpose of securing maximum profits. Wartime regulation of the economy
was carried out so as to enrich the biggest monopolies. To this end the working day was
lengthened in a number of countries, strikes were forbidden, barrack discipline and forced
labour were introduced in the enterprises. The main source of the unprecedented growth of
profits was furnished by State war contracts paid for out of the Budget. War expenses absorbed
a huge share of the national income during the war, and were covered first and foremost by
increases in taxes on the working people. The bulk of the war appropriations went to the
monopolists in the form of payment for war contracts, grants and subsidies. The prices paid
under war contracts ensured enormous profits for the monopolies. Lenin called war contracts
legalised treasury-looting. The monopolies gained through the lowering of the real wages of the
workers by means of inflation, and also through direct plundering of occupied territories.
During the war the rationing system of distributing products was introduced in the European
countries, and this restricted consumption by the working people to a bare minimum.

The war carried the poverty and misery of the masses to extreme limits,
sharpened class contradictions, and brought about an upsurge of the
revolutionary struggle of the working class and the working peasantry in the
capitalist countries. Moreover, the war, which from European became world-
wide, dragged into its orbit the rear of imperialism as well-the colonies and
dependent countries-which facilitated the joining together of the revolutionary
movement in Europe with the national liberation movement of the peoples of
the East.
The war weakened world capitalism.

The European war, wrote Lenin in those days, means the

greatest crisis in history, the beginning of a new epoch. Like every crisis,
the war has made deeply-hidden contradictions more acute and brought
them to the surface. (Lenin, Dead Chauvinism and Living Socialism,
Works, Russian edition, vol. XXI, p. 81.)

It called forth a mighty upsurge of the anti-imperialist revolutionary

movement.

The Victory of the Great October Socialist Revolution.

and the Splitting of the World into Two Systems: Capitalist
and Socialist

The proletarian revolution breached the front of imperialism first of all in

Russia, which turned out to be the weakest link in the imperialist chain. Russia
was a focal point of all the contradictions of imperialism. In Russia the tyranny
of capital was interwoven with Tsarist despotism, with survivals of serfdom and
with colonial oppression in relation to the non-Russian peoples. Lenin called
Tsardom military-feudal imperialism.
Tsarist Russia was a reserve of western imperialism as a sphere of
investment of foreign capital, which controlled. the decisive branches of
industry (fuel and metallurgy), and as a support for western imperialism in the
East. The interests of Tsardom and of western imperialism were merged in a
single tie-up.
The high degree of concentration of Russias industry and the existence
of such a revolutionary party as the Communist Party had transformed the
working class of Russia into the greatest political force in the country. The
Russian proletariat possessed a valuable ally in the peasant poor, which made
up the great majority of the peasant population. Under these conditions it was
inevitable that the bourgeois-democratic revolution in Russia should inevitably
grow over into the socialist revolution, assume an international character and
shake the very foundations of world imperialism.
The international significance of the great October Revolution consists in
the facts that, first, it breached the front of imperialism, overthrew the
imperialist bourgeoisie in one of the largest capitalist countries and for the first
time in history placed the proletariat in power; secondly, it not only shook
imperialism in the metropolitan countries but also struck a blow at
imperialisms rear, undermining its domination in the colonies and dependent
countries; thirdly, by weakening the power of imperialism in the metropolitan
countries and shaking its domination in the colonies, it thereby brought into
question the very existence of world imperialism as a whole.
The great October Socialist Revolution meant a radical turn in the world
history of mankind; it opened a new epoch-the epoch of proletarian revolutions
in the countries of imperialism and national liberation movements in the
colonies. The October Revolution wrested from the rule of capital the working
people of one-sixth of the earth and brought about the splitting of the world
into two systems, capitalist and socialist, which is the most vivid expression of
the general crisis of capitalism. As a result of the splitting of the world into two
systems a contradiction arose which was new in principle and was of world
historical importance-the contradiction between dying capitalism and growing
socialism. The struggle between the two systems, capitalism and socialism,
became of decisive importance if) the present epoch.
Describing the general crisis of capitalism, J. V. Stalin said:

It means, first of all, that the imperialist war and its aftermath
intensified the decay of capitalism and upset its equilibrium, that we are
now living in an epoch of wars and revolutions, that capitalism has
already ceased to be the sole and all-embracing system of world
economy, that side by side with the capitalist system of economy there is
the socialist system, which is growing, thriving, which stands opposed to
the capitalist system and by its very existence demonstrates the
decaying state of capitalism and shakes its foundations. (Stalin, Political
report of the Central Committee to the XVI Congress of the C.P.S.U.(B),
Works, vol. XII, p. 253.)
 The first years after the war of 1914-18 were a period of terrible collapse
in the economy of most of the capitalist countries that took part in the war, a
period of bitter conflict between the proletariat and the bourgeoisie. As a result
of the upheaval suffered by world capitalism and under the direct influence of
the great October Socialist Revolution, a number of revolutions and
revolutionary outbreaks occurred both on the continent of Europe and in the
colonial and semi-colonial countries. This powerful revolutionary movement,
and the sympathy and support shown to Soviet Russia by the working masses
of the whole world, doomed to failure all the attempts of world imperialism to
smother the first socialist republic in the world. In 1920-1 a deep-going
economic crisis broke out in the U.S.A. and a number of other capitalist
countries.
Having emerged from the post-war economic chaos, the capitalist world
entered in 1924 upon a period of relative stabilisation. The revolutionary
upsurge gave way to a temporary ebb of the revolution in a number of
European countries. There was a temporary, partial stabilisation of capitalism
achieved by redoubled exploitation of the working people. Under the flag of
capitalist rationalisation a ruthless intensification of labour was introduced.
Capitalist stabilisation inevitably led to a sharpening of the contradictions
between the workers and the capitalists, between imperialism and the colonial
peoples, between the imperialists of different countries. Beginning in 1929, a
world economic crisis brought capitalist stabilisation to an end.
Meanwhile, the national economy of the U.S.S.R. was developing steadily
on an upward trend, without crises or catastrophes. The Soviet Union was in
those days the only, country which did not know crises and other contradictions
of capitalism. The industry of the Soviet Union went forward continually, at
rates never seen before in history. In 1938 the U.S.S.R.s industrial production
was 908.8 per cent of the 1913 figure, whereas industrial production in the
U.S.A. was only 120 per cent, Britains was 113.3 per cent and Frances 93.2
per cent. The contrast of, the economic development of the
U.S.S.R. with that of the capitalist countries revealed graphically the decisive
advantages of the socialist system of economy over the capitalist system.
The rise of the first Socialist State in the world had a very great influence
on the development of the revolutionary struggle of the working people.
The experience of the U.S.S.R. has shown that the worker can
successfully govern a country and build up and manage its economy without
the bourgeoisie. Every year of peaceful emulation between socialism and
capitalism undermines and weakens capitalism and strengthens socialism.
The example of the working people of the Soviet Union and of the other
countries which have overthrown the capitalist yoke rouses the oppressed
peoples to fight for their freedom against imperialism. International
imperialism strives to smother or, at least, to weaken the Socialist State. The
camp. of imperialism tries to settle its own internal difficulties and
contradictions through kindling war against the U.S.S.R. and the countries of
Peoples Democracy. In the struggle against imperialist intrigues the Soviet
Union relies upon its economic and military might and on the support of the
international proletariat and the working people of the whole world.
The experience of history shows that, in the struggle between the two
systems, the socialist system of economy is assured of victory over capitalism
on a basis of peaceful emulation. The Soviet State proceeds in its foreign policy
from the possibility of peaceful co-existence of the two systems, capitalism and
socialism, and resolutely follows a policy of peace between the peoples.

Crisis of the Colonial System of Imperialism

Among the most important features of the general crisis of capitalism is

the crisis of the colonial system of imperialism. This crisis, which arose in the
period of the first world war, is becoming wider and deeper. The crisis of the
colonial system of imperialism means an acute sharpening of the contradiction
between the imperialist Powers, on the one hand, and the colonies and
dependent countries, on the other, and the development of the struggle of the
oppressed peoples of these countries for national liberation and the liberation
of a number of colonies from imperialist enslavement.
The great October Socialist Revolution has played a very great role in the
rise of the national liberation movement in the colonies and dependent
countries. It unleashed a number of mighty national liberation movements in
the countries of the colonial East. The victory of the October Socialist
Revolution in Russia contributed greatly to the rise of the national liberation
struggle of the great Chinese people. Powerful movements for national
liberation also .arose in India, Indonesia and other countries. The great
October Socialist Revolution opened an epoch of colonial revolutions bringing to
the peoples of the colonies liberation from the imperialist yoke.
In the period of the general crisis of capitalism, the role played by the
colonies as sources of maximum profits for the monopolies becomes greater.
The sharpened struggle between the imperialists for markets and spheres of
influence, and the more acute difficulties and contradictions in the capitalist
countries, lead to intensified pressure being put on the colonies by the
imperialists, to increased exploitation of the peoples of the colonial and
dependent countries. This brings about an intensification of the anti-imperialist
struggle for national liberation.
Another factor in the crisis of the colonial system is the development of
industry and native capitalism in the colonies, which renders more acute the
problem of the world capitalist market and leads to the growth of an industrial
proletariat in the colonies.
The first world war, during which the export of manufactured goods from
the metropolitan countries sharply declined, gave a notable fillip to the
industrial development of the colonies. In the inter-war period, as a result of
the increased export of capital to the backward countries, capitalism continued
develop in the colonies. In connection with this the proletariat grew in numbers
in these countries.

The total number of industrial enterprises in India increased from 2,874 in 1914 to
10,466 in 1939, and connected with this was an increase in the number of factory workers. The
number of workers in Indian manufacturing industry, which amounted to 951,000 in 1914, was
1,751,000 in 1939. The total number of workers in India, including miners, railway and water
transport workers and also plantation workers, amounted in 1939 to about 5 million persons.
In China (less Manchuria) the number of industrial enterprises (employing not less than thirty
workers), grew from 200 in 1910 to 2,500 in 1937, and the number of workers employed in
them from 150,000 in 1910 to 2,750,000 in 1937. Taking into consideration that Manchuria
was more highly developed industrially, the number of workers in industry and transport (not
including small-scale enterprises) amounted in China on the eve of the second world war to
about 4 million. The numbers of the industrial proletariat grew considerably in Indonesia,
Malaya and in the African and other colonies.
The exploitation of the working class in the colonies becomes more intense in the period
of the general crisis of capitalism. A commission which investigated the conditions of the Indian
workers in 1929-31 established the fact that the family of an ordinary worker had to live on
wages which worked out per head at only about half what it cost to keep a prisoner in the
prisons of Bombay. The bulk the workers in the colonies fall into debt-bondage to the money-
lenders. Forced labour is widespread in the colonies, especially in mining and agriculture (on
the plantations).

The working class of the colonies is an active and most consistent fighter
against imperialism, able to rally the vast masses of the peasantry around itself
and lead the revolution to its conclusion. The alliance of the working class with
the peasantry under the leadership of the working class is a decisive condition
for the success of the national liberation struggle of the oppressed peoples of
the colonial countries. Throughout the entire course of economic and political
development, the working class of the colonies comes forward more and more
as the leading force in the national liberation movement.
As has been shown, although a certain amount of industrial development
takes place, imperialism hinders the economic development of the colonies.
Though a certain degree of development of native industry takes place in the
colonial countries, heavy industry still does not develop and they remain
agrarian raw-material appendages of the metropolitan countries. Imperialism
preserves the survivals of feudal relations which exist in the colonies, using
them to help it intensify the exploitation of the oppressed peoples. The
development of capitalist relations which takes place in the countryside,
breaking up the natural forms of economy, only intensifies the exploitation and
pauperisation of the peasantry. The colonial revolution is a junction of two
streams of the revolutionary movement-the movement against feudal survivals
and the movement against imperialism. It is not possible to abolish feudal
survivals in the colonies without a revolutionary overthrow of imperialist
oppression. The biggest force in colonial revolutions consists of the peasantry,
which makes up the bulk of the population in the colonies.
The national bourgeoisie in the colonies, whose interests are encroached
upon by foreign capital, at a certain stage of the revolution takes part in the
struggle against imperialism. Given correct proletarian leadership of the
movement, the inconsistency and wavering of the national bourgeoisie in the
struggle against imperialism and feudal survivals can be overcome, and the
national bourgeoisie is capable of playing a progressive role in certain periods
of the revolution. At the same time, as the national liberation struggle of the
colonial peoples develops, the activity of the reactionary forces of the feudal
landlords and compradore bourgeoisie is intensified.
The growth of the working class in the colonial countries and the
intensification of the national liberation struggle of the peoples of these
countries in the period of the general crisis of capitalism signify a new stage in
the development of the national liberation movement. Where formerly the
national liberation struggle led only to the consolidation of the power of the
bourgeoisie, in the period of the general crisis of capitalism it becomes possible
for the working class to win the hegemony and secure the development of the
given country along the road to socialism, by-passing the capitalist stage.
In the period of the general crisis of capitalism the national liberation
movement in the colonies links itself ever more closely with the revolutionary
struggle of the working class in the metropolitan countries. The colonies and
dependent countries are transformed to an ever greater extent from reserves
of imperialism into reserves of the socialist revolution.

Aggravation of the Problem of Markets; Chronic

Under-capacity Working of Enterprises and Chronic Mass
Unemployment

An integral feature of the general crisis of capitalism is the progressive

sharpening which the problem of markets under-goes, and the chronic under-
capacity working of enterprises and chronic mass unemployment which result
from this.
The sharpening of the problem of markets in the period of the general
crisis of capitalism is caused first and foremost by the falling-away of a number
of countries from the world system of imperialism. The departure from the
capitalist system of Russia, with its huge markets and sources of raw material,
could not but have an effect on the economic situation of the capitalist world.
In the period of the general crisis of capitalism the impoverishment of the
working people, whose standard of living the capitalists try to restrict to the
absolute minimum, inevitably gets worse, and as a result the effective demand
of the masses declines. The development of native capitalism in the colonies
and dependent countries renders the problem of markets more acute, for this
native capitalism begins to compete on the markets with the old capitalist
countries. The development of the national-liberation struggle of the peoples of
the colonial countries also complicates the position of the imperialist States in
overseas markets.
Consequently, characteristic of the inter-war period was a relative
stability of markets, while the production potentialities of capitalism grew. This
could not but sharpen to the utmost all the contradictions of capitalism.

This contradiction between the growth of the production

potentialities and the relative stability of markets lies at the root of the
fact that the problem of markets is today the fundamental problem of
capitalism. An aggravation of the problem of markets in general, and
especially an aggravation of the problem of foreign markets, and an
aggravation of the problem of markets for capital exports in particular
such is the present state of capitalism. This, indeed, explains why it is
becoming a common thing for mills and factories to work below capacity.
(Stalin, Political Report of the Central Committee to the XV Congress of
the C.P.S.U.(B), Works, English edition, vol. x, pp. 281-2.)

In previous years mass under-capacity working of factories was a feature

only of economic crises. Characteristic of the period of the general crisis of
capitalism is chronic under-capacity working of enterprises.
 Thus, in the boom period of 1925-9 the productive capacity of manufacturing industry in
the U.S.A. was utilised only to the extent of 80 per cent. In 1930-4 the utilisation of the
productive capacity of manufacturing industry Jell to 60 per cent. Moreover, it must be taken
into account that U.S. bourgeois statistics, in calculating the productive capacity of
manufacturing industry, did not include in its reckoning enterprises which were inactive for a
long period and took as normal enterprises where only one shift was worked.

Closely connected with the, chronic under-capacity working, of

enterprises is chronic mass unemployment. Down to the first world war the
reserve army of labour grew during years of crisis but in boom periods shrank
to comparatively small dimensions. In the period of the general crisis of
capitalism unemployment attains huge dimensions and remains at a high level
also in the years of recovery and boom. The reserve army of labour is
transformed into a standing army of unemployed numbering many millions.

At the peak of the industrial boom between the two world wars, in 1928, the number of
wholly unemployed in the U.S.A. amounted to about two millions, but in the following years,
right down to the second world war the number never fell below eight millions. In Britain the
number of insured workers wholly, unemployed never fell, in the period 1922-38, below
1,200,000 persons annually. Millions of workers subsisted on casual work and were victims of
partial unemployment.

Chronic mass unemployment markedly worsens the position of the working

class. It enables the capitalists to intensify labour in factories to an enormous
extent, to dismiss workers already exhausted by excessive labour and to
engage in their place fresh, stronger and healthier workers. In this connection
the working life of the working people is reduced, and also the length of their
employment. The working people become more and more uncertain what the
morrow will bring. The capitalists make use of chronic mass unemployment to
effect a sharp reduction in the wages of the employed workers. The incomes of
working-class families are reduced also as a result of the reduction in the
number of the members of the family at work.

In the U.S.A., according to bourgeois statistical data, the growth of unemployment from
1920 to 1933 was accompanied by a fall in average annual wages of the workers employed in
industry, building and railway transport from 1,483 dollars in 1920 to 915 dollars in 1933, i.e.,
by 38 per cent. The unemployed members of the family had to be supported out of the meagre
wages of the working members. If the total wage fund is related not merely to the employed
workers but to the workers as a whole, both employed and unemployed, it is seen that the
wages per worker (including the unemployed) fell in connection with the growth of
unemployment from 1,332 dollars in 1920 to 497 dollars in 1933, i.e., by 62.7 per cent.

Chronic mass unemployment has a grave effect also on the position of

the peasantry. In the first place, it contracts the internal market and reduces
the urban populations demand for agricultural produce. This leads to agrarian
crises becoming more serious. Secondly, it worsens the situation on the labour
market and renders it difficult for peasants who have been ruined, and are
seeking work in the towns, to find a place in industry. Consequently, agrarian
surplus-population and the pauperisation of the peasantry increase. Chronic
mass unemployment, like chronic under-capacity working of enterprises, is a
proof of the decay of capitalism, its inability to make use of the productive
forces of society.
The intensified exploitation of the working class and the reduction in its
standard of living in the period of the general crisis of capitalism leads to a
further sharpening of the contradictions between labour and capital.

Deepening of Crises of Overproduction and Changes in the

Capitalist Cycle

The lagging of markets behind growth of production potentialities in the

capitalist world, the existence of chronic under-capacity working of enterprises
and chronic mass unemployment leads to crises of overproduction becoming
deeper and to essential changes taking place in the capitalist cycle.
These changes can be summed up as follows: the length of the cycle is
shortened, so that crises become more frequent; the devastating effects of
crises grow greater; it is harder to find a way out of the crisis, so that the
length of the crisis phase of the cycle becomes greater, as also that of the
depression phase, while booms become less stable and less prolonged.
Before the first world war economic crises usually occurred every 10-12
years, and only occasionally within 8 years of each other. In the period
between the two world wars, from 1920 to 1938, i.e., in 18 years, there were
three economic crises: in 1920-1, in 1929-33 and in 1937-8.
The depth of the fall in production in the period of the general crisis of
capitalism taken as a whole increases. The output of manufacturing industry in
the. U.S.A. fell during the crisis of 1920-1 (i.e., from the peak point before the
crisis to the lowest point reached during the crisis) by 23. per cent, during the
1929-33 crisis by 47.1 per cent, and during that of 1937-8 by 22.9 per cent.
The economic crisis of 1929-33 was the deepest and most acute crisis in
the history of capitalism. In this the impact of the general crisis of capitalism
was felt with great force.

The present crisis, said E. Thalmann, describing the crisis of

1929-33, is of the nature of a cyclical crisis within the setting of the
general crisis of the capitalist system in the epoch of monopoly
capitalism. In this matter we must grasp the dialectical interaction
between the general crisis and a periodical crisis. On the one hand, the
periodical crisis assumes unprecedentedly acute forms, because it
unfolds against the background of the general crisis of capitalism and is
determined by the conditions of monopoly capitalism. On the other hand,
the damage caused by the periodical crisis in its turn deepens and
accelerates the general crisis off the capitalist system. (Thalmann, Tasks
of the Peoples Revolution in Germany, Report to the Plenum of the C.C.
of the Communist Party of Germany, January 15, 1931, pp. 27, 28.)

The economic crisis of 1929-33 involved all the countries of the capitalist
world without exception. Consequently it proved impossible for some countries
to manoeuvre for their own advantage at the expense of others. The crisis
struck with its maximum force at the strongest country of modern capitalism,
the U.S.A. The industrial crisis in the principal capitalist countries was
interwoven with an agricultural crisis in the agrarian countries, which resulted
in aggravation of the economic crisis as a whole. Industrial production in the
capitalist world as a whole fell by 36 per cent, and in certain countries fell still
more. The turnover of world trade fell by two-thirds. The finances of the
capitalist countries fell into complete confusion.
In the period of the general crisis of capitalism economic crises lead to an
enormous increase in the numbers of persons unemployed.

The percentage of wholly unemployed at the time when production was at its lowest
amounted, according to official figures for 1932, to 32 per cent in the U.S.A. and 22 per cent in
Britain. In Germany the percentage of trade union members wholly unemployed amounted in
1932 to 43.8 per cent, while 22.6 per cent were partly unemployed. In absolute figures the
number of wholly unemployed amounted in 1932: in the U.S.A. (according to official data) to
13.2 millions, in Germany to 5.5 millions, in Britain to 2.8 millions. In the capitalist world as a
whole there were in 1933 40 million persons wholly unemployed. The number of semi-
unemployed attained tremendous dimensions. Thus, in the U.S.A. the number of semi-
unemployed amounted in February 1932 to 11 million.

Chronic under-capacity working of factories and extreme impoverishment

of the masses make it hard to emerge from the crisis. Chronic under-capacity
working of enterprises restricts the field for renewal and expansion of fixed
capital and hinders the transition from depression to recovery and boom.
Chronic mass unemployment and the policy of high monopoly prices work in
the same way, restricting the expansion of the market for consumer goods.
This means a lengthening of the crisis phase. Whereas previously crises
worked themselves out in a year or two, the crisis of 1929-33 lasted over four
years.
The recovery and boom which succeeded the crisis of 1920-1 took place
quite unevenly and were more than once interrupted by partial crises. In the
U.S.A. partial crises of overproduction occurred in 1924 and 1927. In Britain
and Germany a considerable fall in production took place in 1926. The crisis of
1929-33 was succeeded not by an ordinary depression but by a depression of a
special type, which did not lead to a new boom and industrial prosperity,
though it did not return to the point of maximum decline. The depression of a
special type was followed by a certain recovery which, however, did not lead to
prosperity on a new, higher basis.
The industrial production of the capitalist world in 1937 exceeded the
level of 1929 only by 3.5 per cent, and in many capitalist countries (U.S.A.,
France, Italy, etc.) did not even attain the 1929 level. In the middle of 1937 a
fresh economic crisis began in the capitalist world, starting in the U.S.A. and
later spreading to Britain, France and a number of other countries.

The total volume of industrial production in the capitalist world in 1938 was 10.3 per
cent lower than in 1937; in the U.S.A. it was 21.8 per cent lower, in Britain 12 per cent, in
France 9 per cent. Compared with 1929 the total volume of industrial production in 1938
reached in the U.S.A. the level of 72.3 per cent, in Britain 98.7 per cent, in France 66 per cent
and in Italy 98.5 per cent.

The crisis of 1937-8 differed from that of 1929-33 first and foremost in
that it arose, not after a phase of industrial prosperity as had happened in
1929, but after a depression of a special type and a certain recovery.
Furthermore, this crisis began in the period when Japan had started war in
China, when Germany and Italy had switched their economies on to a war
basis, and when all the remaining capitalist countries had begun to put
themselves on a war footing. This meant that capitalism had very much less
resources for a normal emergence from this crisis than it had during the crisis
of 1929-33.
In the conditions of the general crisis of capitalism agrarian crises
become more frequent and more profound. On the heels of the agrarian crisis
of the first half of the 1920s there began in 1928 a fresh, deep-going agrarian
crisis, which lasted right down to the second world war. Relative overproduction
of agricultural produce led to a marked fall in prices, worsened the position of
the peasantry.

In the U .S,A. in 1921 the index of prices paid to farmers fell to 58.5 per cent of the
level of 1920, and in 1932 to 43.6 per cent of the level of 1928. The output of arable farming in
the U.S.A. fell in 1934 to 67.9 per cent of the 1928 level and 70.6 per cent of the 1920 level.
Farmers incomes fell.

The ruin and pauperisation of the bulk of the peasantry; brings about a
growth in revolutionary sentiments among them and pushes them along the
road of struggle against capitalism under the leadership of the working class.
Arms drives and world wars, which are used by the monopolies to secure
maximum profits, have a big effect on the course of capitalist reproduction and
the capitalist cycle, in the conditions of the general crisis of capitalism. The
factors of war inflation may lead to a temporary recovery of economic activity
and hold back the development of a crisis which has begun, or slow down the
advance of a fresh economic crisis. But wars and the militarisation of the
economy cannot save capitalist economy from crises. Indeed, they facilitate
the further deepening and sharpening of economic crises. World wars lead to
destruction of productive forces and social wealth on a huge scale: factories,
stocks of material wealth, human lives. Wars, by giving a one-sided direction to
the development of the national economy, intensify the unevenness and
disproportional character of capitalist economy. Militarisation of the economy
means an expansion of the production of armaments and supplies for the
armed forces at the price of a contraction of production of consumer goods,
and an excessive increase in taxation and rise in the cost of living, which
inevitably lead to a reduction in consumption by the population and a
sharpening of the contradiction between production and consumption, and
prepare the onset of another, still deeper economic crisis.
The intensification of the decay of capitalism in the period of its general
crisis is shown in an all-round lowering in the rate of production. Average
annual rates of growth of industrial production in the capitalist world were: in
the period 1890-19133.7 per cent; and in 1913-532.5 per cent. Along with
this the unevenness of the development of capitalist production sharply
intensified.
During the general crisis of capitalism the monopolist bourgeoisie,
striving to fend off the collapse of the capitalist system and to retain its
domination, conducts an onslaught on the standard of living and democratic
rights of the working people and resorts to police methods of rule. In all the
principal capitalist countries the development of State-monopoly capitalism is
intensified.
 Being no longer able to rule by the old methods of parliamentarian and
bourgeois democracy, in a number of countriesItaly, Germany, Japan and
othersthe bourgeoisie set up fascist regimes. Fascism is the open, terrorist
dictatorship of the most reactionary and aggressive elements of finance capital.
Fascism sets itself the aims, internally, of smashing the organisations of the
working class and crushing all progressive forces, and, externally, of preparing
and launching a war of conquest for domination of the world. Fascism seeks to
realise these aims by methods of terror and social demagogy.
Thus the world economic crisis of 1929-33 and the crisis of 1937-8 led to
a marked sharpening of the contradictions both within the capitalist countries
and between them. The imperialist States sought a way out of these
contradictions along the road of preparation for a war for a new re-division of
the world.

BRIEF CONCLUSIONS
(1) The general crisis of capitalism is an all-round crisis of the world
capitalist system as a whole. It embraces both economics and politics.
Underlying it is the continually increasing disintegration of the world system of
capitalism, from which country after country is falling away on the one hand
and on the other, the growing economic might of the countries which have
broken away from capitalism.
(2) The general crisis of capitalism embraces an entire period of history,
in the course of which take place the breakdown of capitalism and victory of
socialism on a world scale. The general crisis of capitalism began during the
first world war, and especially as a result of the falling away of the Soviet Union
from the capitalist system.
(3) The great October Socialist Revolution meant a radical turn in the
world history of mankind, from the old, capitalist world to the new, socialist
world. The splitting of the world into two systemsthe system of capitalism
and the system of socialismand the struggle between these is the
fundamental symptom of the general crisis of capitalism. With the splitting of
the world into two systems two lines of economic development made their
appearance. While the capitalist system becomes more and more entangled in
insoluble contradictions, the socialist system develops on a steadily upward-
moving line, without crises and catastrophes.
(4) The crisis of the colonial system of imperialism is one of the most
important features of the general crisis of capitalism. This crisis consists of the
development of the national liberation struggle, which shakes the foundations
of imperialism in the colonies. The working class takes the lead of the struggle
of the oppressed peoples for national liberation. The great October Socialist
Revolution unleashed the revolutionary activity of the oppressed peoples and
opened the epoch of colonial revolutions headed by the proletariat.
(5) In the conditions of the general crisis of capitalism, as a result of the
falling-away of a number of countries from the system of imperialism, of the
increased impoverishment of the working people and also of the development
of capitalism in the colonies, the problem of markets becomes more acute. A
characteristic feature of the general crisis of capitalism is chronic under-
capacity working of enterprises and chronic mass unemployment. Under the
impact of the sharpening of the market problem, of the chronic under-capacity
working of enterprises and of chronic mass unemployment there occur an
aggravation of economic crises and essential changes in the capitalist cycle.
CHAPTER XXII

THE AGGRAVATION OF THE GENERAL CRISIS

OF CAPITALISM AFTER THE SECOND WORLD
WAR

The Second World War and the Second Stage of the

General Crisis of Capitalism

Lenin foresaw that the first world war would be followed by other wars,
called forth by imperialist contradictions. Everyone can see, he said, after the
end of the 1914-18 war, that another war of the same kind is inevitable if the
imperialists and the bourgeoisie remain in power. (Lenin, Speech at
Celebration Meeting of the Moscow Soviet in Honour of the Anniversary of the
Third International, Works, Russian edition, vol. xxx, p. 398.)
The distribution of spheres of influence among the imperialist countries
which resulted from the first world war proved still less lasting than that which
had prevailed before the war. The role of Britain and France in world industrial
production markedly declined, and their positions in the world capitalist market
deteriorated. The American monopolies, which greatly enriched themselves
during the war, expanded their production capacity and advanced to first place
in the capitalist world in respect of export of capital. Germany, after suffering
defeat in the first world war, rapidly restored its heavy industry with the help of
American and also British loans, and began to demand a re-division of spheres
of influence. Japan took the road of aggression against China. Italy began a
struggle to seize a number of colonial possessions belonging to other Powers.
Thus, the operation during the first world war of the law of uneven
development of capitalist countries led to another sharp break-up of the
equilibrium within the world system of capitalism. The formation in the
capitalist world of two hostile camps led to the second world war.
The second world war, which was prepared by the forces of international
imperialist reaction, was begun by the bloc of fascist StatesGermany, Japan
and Italy. In the period preceding the war the ruling circles of the U.S.A.,
Britain and France tried to turn the aggression of German fascism and
Japanese imperialism against the Soviet Union, conniving in every possible way
at the actions of the aggressors and giving them the utmost encouragement to
start a war. However, German imperialism began the war first against France,
Britain and the U.S.A., and only later attacked the Soviet Union. The second
world war was a war of conquest and plunder on the part of Germany and its
allies in robbery, fascist Italy and militarist Japan. It was a just war of liberation
on the part of the Soviet Union and the other peoples who were subjected to
the fascist onslaught.
 In the scale of military operations, the numbers of the armed forces involved and the
amount of armaments employed, the size of the human sacrifices and the volume of
destruction of material wealth, the second world war far outstripped the first. Many countries of
Europe and Asia suffered gigantic human losses and unprecedented material damage.
The direct war expenditure of the States taking part in the war came to about a
thousand milliard dollars, which does not include losses from destruction caused by military
operations, The economy and culture of many peoples of Europe and Asia suffered tremendous
damage from the robber rule of the German-fascist and Japanese occupying forces.
The war brought about a further development of State-monopoly capitalism. A whole
series of measures connected with the war which were taken by the bourgeois States, were
directed to ensuring maximum profits to the magnates of finance capital. These purposes were
served by such measures as giving to the biggest monopolies war contracts worth milliards on
extraordinarily advantageous terms; handing over State enterprises to the monopolies at trivial
prices; distribution of raw material and labourpower in short supply in the interests of the
leading companies; compulsory closing-down of hundreds and thousands of small and medium
enterprises or their subjection to a few arms-industry firms.
The war expenditure of the belligerent capitalist Powers was met by means of taxation,
loans and the issuing of paper money. In 1943-4, in the principal capitalist countries (U.S.A.,
Britain, Germany) taxes absorbed about 35 per cent of the national income. Inflation brought
about a tremendous price-rise. The lengthening of the working day, the militarisation of labour,
the increase in the burden of taxation and of the high cost of living, the fall in the level
of consumption-all this meant a still greater intensification of the exploitation of the
working class and the bulk of the peasantry.
The monopolies amassed fabulous profits during the war. The profits of the American
monopolies grew from 3.3 milliard dollars in 1938 to 17 milliard in 1941, 20.9 milliard in 1942,
246 milliard in 1943 and 23.3 milliard in 1944. The monopolies of Britain and France and of
fascist Germany, Italy and Japan also made huge profits during the war.
During the war and after the war the economic and political tyranny of the monopolies
and the weight of their yoke in the capitalist countries increased still more. A particular
expansion took place in the scale of operations of the American monopolies such as United
States Steel, the Dupont chemical concern, the General Motors and Chrysler automobile firms,
General Electric and others. The General Motors concern, for example, now owns 102 factories
in the U.S.A. and 33 in 20 other countries; about half a million workers are employed in these
enterprises.

Each of the two capitalist coalitions which grappled with each other
during the first period of the war hoped to smash the other and both German
and American imperialism strove to achieve world domination. It was thus that
they sought their way out of the general crisis. At the same time, both of the
capitalist groupings reckoned on the Soviet Union perishing or being
substantially weakened in the course of the war, and also on strangling the
working-class movement in the metropolitan countries and the national
liberation movement in the colonies.
Thanks to the heroic struggle waged by the Soviet people and the
economic and military might of the U.S.S.R., and thanks to the upsurge of the
anti-imperialist national liberation movement in Europe and Asia, these
calculations of the imperialists were frustrated. The second world war ended in
the complete rout of the fascist States by the armed forces of the anti-Hitler
coalition. The decisive part in this rout was played by the Soviet Union, which
saved from the fascist enslavers the civilisation, freedom, independence and
very existence of the peoples of Europe, Contrary to the calculations of the
imperialists, who had expected it to be destroyed or weakened, the Soviet
State emerged from the war stronger than before and with enhanced
international prestige. The great Patriotic War of the Soviet Union showed the
strength and might of the first socialist Power in the world and the enormous
advantage of socialist society and the socialist form of State. The rout of the
fascist aggressors unloosed the forces of the national-liberation movement in
Europe and Asia.
The law of social development in the present epoch, discovered by Lenin,
by virtue of which the revolutionary supersession of the capitalist system of
economy by the socialist takes place through a gradual falling away of country
after count. from the world system of capitalism, was fully confirmed.
Contrary to the imperialists calculations that the revolutionary
movement would be weakened and routed, the war led to more countries
leaving the capitalist system. The peoples of a number of countries of Central
and South-eastern EuropePoland, Czechoslovakia, Yugoslavia, Rumania,
Hungary, Bulgaria, Albaniathrew off the yoke of the reactionary regimes
which oppressed them and took power into their own hands. Peoples
democratic republics carried out fundamental social and economic changes and
took the road of building the foundations of socialism. The formation of the
German Democratic Republic constituted a grave setback to world imperialism
and a noteworthy success for the camp of peace and democracy; it is a
stronghold of the democratic forces of the German people in their struggle to
form a united, democratic and peace-loving Germany.
Contrary to the imperialists calculations of a further enslavement of the
peoples of the colonies and dependent countries, a mighty upsurge of the
national liberation struggle took place in these countries. Very great historic
changes occurred in Asia, where live more than half of the population of the
entire world. The first place among those changes belongs to the victory of the
great Chinese people, headed by the Chinese Communist Party, over the
combined forces of imperialism and the internal feudal reaction. The peoples
revolution in China put an end to the rule of the feudal exploiters and foreign
imperialists in the largest semi-colonial country in the world, liberating from
the power of imperialism a people numbering six hundred millions. The
formation of the Chinese Peoples Republic was the most powerful blow to the
entire system of imperialism since the great October Socialist Revolution in
Russia and the victory of the Soviet Union in the second world war. Peoples
republics arose in Korea and Vietnam.
All this led to a further substantial change in the relation of forces
between socialism and capitalism in favour of socialism and to the
disadvantage of capitalism. As a result of the falling away from capitalism of a
number of countries of Europe and Asia, more than a third of mankind have
already been freed from the capitalist yoke.
The period of the second world war witnessed, especially after the
breakaway of the peoples democratic countries, both in Europe and in Asia,
from the capitalist system, the development of the second stage of the general
crisis of capitalism, which is marked by the further deepening and sharpening
of this crisis.

The Formation of Two Camps in the International Arena and

the Break-up of the Single World Market
 A very important result of the second world war was the formation of the
world camp of socialism and democracy, uniting the countries of Europe and
Asia which have left the capitalist system, and headed by the Soviet Union and
the Chinese Peoples Republic. Hundreds of millions of working people in the
capitalist world and all progressive forces in the world of today sympathise with
the ideas of peace, democracy and socialism. The camp of socialism and
democracy is confronted by the camp of capitalism, headed by the U.S.A.
The second world war and the formation of two camps in the
international arena has had as its most important economic consequence the
break-up of the single, all-embracing world market.

The economic consequence of the existence of two opposite

camps was that the single, all-embracing world market disintegrated, so
that now we have two parallel world markets, also confronting one
another. (Stalin, Economic Problems of Socialism in the U.S.S.R., F.L.P.H.
Edition, 1952, p. 35.)

This has caused a further aggravation of the general crisis of capitalism.

In the post-war period, the countries of the socialist camp have dosed their
ranks economically and arranged for close collaboration and mutual aid among
themselves. Economic collaboration between the countries of the socialist camp
is based upon a sincere desire to help one another and bring about a common
economic advance. The principal capitalist countriesthe U.S.A., Britain and
Francehave tried to subject the Soviet Union, China and the European
countries of peoples democracy to an economic blockade, expecting to be able
to stifle them. But by doing this they have contributed, contrary to their
intention, to forming and consolidating anew, parallel world market. Thanks to
the crisis-free of the economies of the countries of the socialist camp, the new
world market does not experience any difficulty in finding outlets for its goods:
its capacity grows continually.
As a result of the falling-away of a number of countries in Europe and
Asia from the system of imperialism, the sphere in which the forces of the
principal capitalist countries (the U.S.A., Britain, France) have access to world
resources is considerably reduced. This affects the United States with particular
sharpness, as the productive capacity of American industry grew considerably
during the war.
The narrowing of the sphere of access by the forces of the principal
capitalist countries to world resources has brought about an intensification of
the conflict between the countries which make up the imperialist camp, for
outlets for their goods, for sources of raw material and for spheres of capital
investment. The imperialists, and in the first place those of the U.S.A., are
trying to overcome the difficulties arising from their loss of huge markets,
through intensified expansion at the expense of their competitors, acts of
aggression, arms drives and militarisation of the economy. But all these
measures lead to a still greater aggravation of the contradictions of capitalism.
The two campsthe socialist one and the capitalist oneembody two
lines of economic development. One line is a line of rapid development of the
productive forces, continuous advance of peaceful economic activity and steady
increase in the well-being of the working masses of the Soviet Union and the
Peoples Democracies. The other line is the line of capitalist economy, holding
back the development of the productive forces, a line of militarising the
economy and reducing the standard of living of the working people, in
conditions of the continually deepening general crisis of the world capitalist
system.
The two campssocialist and capitalistembody two opposite trends in
international politics. The aggressive circles of the U.S.A. and other imperialist
States are following the road of preparing another war and intensifying
reaction in the internal life of their own countries. The socialist camp is
conducting a struggle against the threat of new wars and imperialist expansion,
for the development of economic and cultural collaboration among the peoples,
to strengthen peace and democracy.

The Crisis of the Colonial System of Imperialism

Becomes More Acute

The second stage of the general crisis of capitalism is marked by a

notable sharpening of the crisis of the colonial system. The attempts made by
the imperialist Powers to pile on to the backs of the peoples of the dependent
countries the burden resulting from the war and its aftermath have led to a
considerable lowering of the standard of living of the working populations of
the colonial world. The American monopolies are penetrating and striking root
in the colonies and spheres of influence of the Western European countries,
under the guise of aid to underdeveloped countries, which leads to still
greater plundering of the enslaved peoples and to aggravation of the
contradictions between the imperialist Powers. Meanwhile the development of
industry in a number of colonial and semi-colonial countries, brought about by
the war, has resulted in a growth of the proletariat, which is more and more
actively opposing imperialism. As a result of all this the contradictions between
the colonies and the metropolitan countries have become more and more
acute, and the struggle of the peoples of the colonial world for national
liberation has become more intense. The rout of the armed forces of German
and Japanese imperialism created new and favourable circumstances for the
success of this struggle. As a result of the second world war and the new
upsurge of the national liberation struggle, in the colonial and dependent
countries there has taken place, in fact, a breakdown of the colonial system of
imperialism.
The breakdown of the colonial system of imperialism is signalised first
and foremost by the breaching of the imperialist front in a number of colonial
and semi-colonial countries which have detached themselves from the world
system of imperialism and established the system of peoples democracy.
As mentioned already, the world front of imperialism has been breached
in China and also in Korea and Vietnam. The great victory of the peoples
revolution in China has had an enormous influence on the whole colonial rear
of imperialism. From an object of imperialist exploitation and of rivalry between
groups of capitalist powers China has been transformed into an independent
great Power, possessed of complete national sovereignty and conducting an
independent policy in the international arena. The Chinese Peoples Republic,
linked by close ties of friendship and co-operation to the Soviet Union and all
the other countries of the socialist camp, functions a powerful factor for peace
and democracy in the Far East an throughout the world.
The break-up of the colonial system of imperialism is further
characterised by the fact that the peoples of a number of other colonial and
dependent countries have won liberation from the colonial regime and taken
the road of independent, sovereign development. Under the pressure of the
national liberation movement in India, a country with a population exceeding
440 millions, British imperialism was obliged to withdraw its colonial
administrative machine from that country. India was divided into two
dominionsIndia and Pakistan. India became an independent republic, carrying
on an independent policy in the international arena. Freed from colonial
oppression, the Indian people are fighting to consolidate their independence,
industrialise their country and introduce agrarian reforms. Besides India,
Indonesia, Burma and Ceylon have also got rid of the colonial regime. The
imperialist Powers, Britain and the U.S.A. first and foremost, are making all
possible efforts to retain and extend their economic positions in these countries
and deprive them of independence. This policy, however, is encountering a
growing resistance on the part of the peoples of the countries concerned, who
are fighting resolutely for their independence.
The sharpening of the crisis of the colonial system of imperialism is
characterised by an upsurge of the national liberation movement of the
oppressed peoples, which has taken on fresh distinctive features. In a number
of colonial countries the leading role of the proletariat and the Communist
Parties has grown and become stronger, which is an important condition for the
success of the struggle of the enslaved peoples directed towards the expulsion
of the imperialists and the introduction of democratic changes. Under the
leadership of the working class a united national democratic front is being
created and the alliance of the working class with the peasantry in the anti-
imperialist and anti-feudal struggle is growing stronger. In certain enslaved
countries the development of the national liberation movement has led to a
prolonged armed struggle of the masses against the colonialists (Malaya, the
Philippines). The peoples of Africa (Madagascar, Gold Coast, Kenya, Union of
South Africa), more ground down than any by imperialist oppression, have
joined the national liberation struggle. Resistance to the imperialists is growing
in the Middle East (Persia, Egypt) and in North Africa (Algeria, Tunisia,
Morocco). In Latin America the struggle against economic overlordship and
political oppression by the finance oligarchy of the United States is growing
more intense.
The reactionary attempts of the imperialists, headed by the imperialist
circles of the U.S.A., to frustrate the national and social rebirth of the peoples
of Asia on anti-imperialist and anti-feudal foundations is inescapably suffering
defeat. The failure of American armed intervention in Korea, the collapse of the
plans of French and American imperialism in Indochina have vividly
demonstrated that the days have passed, never to return, when the
imperialists could impose their will by force of arms on the peoples of Asia and
put down any endeavour on their part to win freedom and independence.
The break-up of the colonial system of imperialism which has begun is
leading to a situation in which the sphere of colonial exploitation is becoming
narrower and narrower. This inevitably intensifies the economic and political
difficulties of the capitalist countries and shakes the foundations of the
imperialist system as a whole.

The Intensification of the Unevenness of Development of

Capitalism. The Expansion of American Imperialism

The second world war, which was born of the uneven development of the
capitalist countries itself led to a further accentuation of this unevenness.
Three imperialist PowersGermany, Japan and Italywere defeated in the
field. France suffered severe damage and Britain was very seriously weakened.
At the same time, the U.S. monopolies, profiting by the war, strengthened their
economic and political position in the capitalist world.
In the period between 1929 and 1939, American industry, which
possessed considerable reserves of productive capacity, essentially marked
time. Enterprises worked a great deal below capacity owing to the narrowness
of markets. During the second world war the territory of the U.S.A. was not
affected by military operations, and its economy suffered no military damage.
At the same time the market for the American monopolies enormously
expanded. The war brought with it a gigantic demand for arms and war
materials. Also, the American monopolies were able to seize the former
markets of the West European countries and their overseas colonies and
spheres of influence. In these circumstances the monopolies of the U.S.A.
could rapidly expand the volume of production and carry through on a
considerable scale a renewal of the productive apparatus of industry.
American industrial production in 1943 was 2.2 times the level of 1939.
In the principal capitalist countries of Western Europe, however, which had
suffered severely in the war, industrial production was considerably reduced by
the end of the war. As a result, the relative weight of the U.S.A. in the to
amount of industrial production of countries of the capitalist camp grew from
41 per cent in 1937 to 56.4 per cent in 1948.
Monopoly circles in the U.S.A., having proclaimed a programme of
establishing world domination, undertook extensive economic and political
expansion into the capitalist countries and colonies. Taking advantage of the
weakening of their competitors, the American monopolies, in their hunt for
maximum profits, seized in the first years after the war an important share of
the capitalist world market. They resorted on a large scale to State-monopoly
forms of the export of capital in order to enslave other countries.
The calculations of the American finance oligarchy about establishing
domination of the capitalist world market were, however, not fulfilled. The
capitalist countries of Western Europe found themselves at the end of the war
having to face great losses. The war had taken heavy toll of the economy of
the principal countries of Western Europe, on whose territory military
operations had taken place (Germany, France, Italy), or whose territory had
been subjected to attacks from the air (Britain). After the end of the war the
bourgeoisie of these countries restored the productive apparatus of industry
and to a considerable extent renewed it at the expense of intensified
exploitation of the working people and lowering of their standard of living.
Owing to the narrowness of the internal market these countries began to make
their way again into their foreign markets, which during the war years had
been seized by the American monopolies. Soon after the war the United States
came into collision in the capitalist world market with increasing competition on
the part of the West-European countries, and in the first place of Britain. The
fight for markets became still sharper when, five or six years after the end of
the war, the monopolies of Western Germany and Japan joined in this fight.

The expansion of American imperialism showed itself first in the guise of aid for the
post-war restoration of Europe. The Marshall Plan which operated in 1948-52 had for its aim
to make the West-European countries dependent on the American monopolies, draw them into
the orbit of aggressive American policy and force the pace of the militarisation of their
economies. The Marshall Plan paved the way for the North Atlantic Pactthe aggressive
alliance formed in 1949 by American imperialism (with the active support of the ruling circles of
Britain) for the purpose of establishing its domination over the world. When the period of the
Marshall Plans operation came to an end it was succeeded by a programme alleged to be for
ensuring mutual security, under which American aid is given only for arms drives, only for
preparations for another war. By the terms of this programme, American imperialism finally
threw off the mask of restorer of the economies of the capitalist countries.
During the war American exports were growing markedly at the expense of those of the
European countries and especially those of Britain, which fell sharply. In 1945 the share of the
U.S.A.s exports in the total export of the capitalist countries amounted to 40.1 per cent as
against 12.6 per cent in 1937, while that of Britains exports fell from 99 per cent in 1937 to
7.4 per cent in 1945. After the war, however, as a result of the more acute struggle on the
world market and the growth of the exports of the European countries, the share of the U.S.A.
in the exports of the capitalist countries declined, amounting in 1954 to 19.5 per cent, while
Britains exports in the same year were 10.1 per cent of the total.

The American monopolies are trying by all possible means to push up

their exports of goods to the other countries of the capitalist camp, employing
to this end both the enslaving terms of the loans which they make to these
countries and also barefaced dumping. At the same time the U.S.A. fences off
its home market in every possible way from the import of foreign goods,
imposing exceptionally high customs duties on these goods. This one-sided
nature of American external trade has brought about a chronic dollar gap in
other countries, i.e., a shortage of dollars with which to pay for goods imported
from the United States.
The economic expansion of the monopolies of the United States leads to
the breaking of historically formed, multilateral economic ties between various
countries. American imperialism deprives Western Europe of the possibility of
obtaining food-stuffs and raw materials from the countries of Eastern Europe,
which could supply these goods in exchange for West European industrial
products. One of the factors in the aggravation of difficulties of capitalist
economy, since the war, is the circumstance that the imperialists have
themselves cut off their access to the world market of the democratic camp,
having reduced to almost nothing their trade with the Soviet Union, the
Chinese Peoples Republic and the European Peoples Democracies.

In the years since the second world war (1946-54) exports from the U.S.A. have
amounted, on the average, to 13.5 milliards a year, while U.S. imports have been only 8.2
milliards; the U.S.A. imported 1.3 milliard dollars worth of goods a year from the countries of
Western Europe, on the average, but exported about 4 milliards worth to these countries. Over
the eight years the gap between the U.S.A.s exports to the countries of Western Europe and its
imports from these countries amounted to 21.6 milliard dollars.
The exchange of goods between the U.S.A. and those countries which now form the
democratic camp was in 1951 only one-tenth of what it had been in 1937; Britains trade with
them was down to one-sixth, and Frances to less than a quarter.

The expansion of the American monopolies deals a painful blow at the

interests of the other capitalist countries. The American monopolies, under the
pretext of aid and through advancing credits to these countries, are striking
root in their economies and conquering important positions in the colonies of
the West European Powers. Britain and France, for which cheap raw materials
and guaranteed markets are of first-class importance, cannot put up
indefinitely with the situation which has been created. The conquered countries
Western Germany, Japan, Italywhich are under the yoke of American
finance capital, also cannot remain satisfied with their lot.
After the second world war the unevenness of development within the
contracted camp of imperialism became still more marked, and this inevitably
led to a further growth of contradictions among the capitalist countries. The
most important of these are the contradictions between the U.S.A. and Great
Britain. These contradictions show themselves in the open struggle being
waged between the American and British monopolies for markets for their
goods, especially in the countries making up the British Empire-Australia,
Canada, India, etc. and for spheres of influence generallyin Western
Europe, in the Near and Far East, in Latin America.
The aggressive blocs of imperialist States, scraped together by the
United States and directed against the countries of the Socialist camp, cannot
eliminate the antagonisms and conflicts between the partners in these blocs,
which have as their foundation the struggle to obtain high, monopoly profits in
conditions in which the territory under the sway of capital has contracted.
Thus, Lenins proposition that the operation of the law of the uneven
development of the capitalist countries in the epoch of imperialism is fraught
with conflicts and armed clashes between these countries remains valid in the
present period.
The aggressive ruling circles of the imperialist Powers, and of the U.S.A.
above all, began immediately after the close of the second world war to carry
out a policy of preparing for a third. Hirelings of the monopolies try to mislead
the peoples by asserting that the inevitability of war is due to the existence in
the world today of two opposed systemscapitalism and socialism. The facts of
history refute this fabrication. The first world war was caused by the
sharpening of imperialist contradictions in a world in which the capitalist
system still held undivided sway. The second world war began as a war
between two coalitions of capitalist countries. In the period since the second
world war the countries of the socialist camp are firmly arid consistently
upholding the cause of preserving. and strengthening peace between the
peoples, taking as their starting-point that the capitalist and socialist systems
are perfectly able to co-exist in peace, emulating each other economically. The
policy of the Soviet Union and the Peoples Democracies, which is directed
towards the development of peaceful co-operation between States regardless
of their social structure, enjoys the support of the working masses and the
sympathy of champions of peace throughout the world.
The peace movement unites hundreds of millions of people in all
countries, including many millions in the capitalist countries. People belonging
to a variety of social groups and holding different political and religious views
have come together on the common ground of the defence of peace and of the
security of the peoples. The plans for another world war which aggressive
imperialist circles are maturing will be doomed to frustration if the peoples take
the cause of peace into their hands and defend it to the end. The democratic
forces of the world are now strong enough to prevent war, if only they will act
in unity and make impotent the capitalist war profiteers and would-be world
conquerors. (William Z. Foster, Outline Political History of the Americas, 1953,
p. 590.),

The Militarisation of the Economy of the Capitalist Countries.

Changes in the Capitalist Cycle

In conditions of the break-up of the single world market and contraction

of the sphere of exploitation of the worlds resources by the chief capitalist
countries, the dominant monopolies are resorting more and more to
militarisation of the economy as a means of bringing about a growth of
production and securing very high profits. In the State Budgets the relative
share taken by expenditure arising directly or indirectly from the arms of drive
is continually rising. The increase in the State Budgets, absorbing an ever
larger slice of the national income, is accompanied by an increase in the gap
between receipts and expenditure, a growth in the public debt, and the
clogging of the channels of monetary circulation with paper money, the
purchasing power of which is falling. Militarisation of the economy inevitably
leads to still greater sharpening of the insoluble contradictions of capitalist
economy.

According to official, certainly underestimated figures, the profits of the American

monopolies grew from 3.3 milliard dollars in 1938 to 34.8 milliard dollars in 1954, i.e., they
were multiplied by ten. During the nine years immediately following the war, the profits of
American monopolies amounted to 304 milliard dollars. In Britain the profits of joint-stock
companies amounted in 1953 to 3,500,000,000, as against 1,000,000,000 in 1938.
In the post-war years (1946-54) the total war expenditure of the U.S.A., including
expenditure on arming the States-members of the North Atlantic alliance (N.A.T.O.) and on
producing atomic bombs, exceeded 258 milliard dollars. Direct military expenditure in the
U.S.A. during the last three years (1952-4) came to 47 milliard dollars per year, or over two-
thirds of the entire Budget, as compared with 953 million dollars, or 12 per cent of the entire
Budget, in the three years before the second world war. In Britain military expenditure has
grown correspondingly, from 173 million to 1,429 million, and from T8per cent to one-third
of the total Budget. In France, war expenditure has during the last three years amounted on
the average to a third of the total Budget.
The purchasing power of the U.S. dollar was in 1954 only 34.6 per cent of what it had
been in 1939, that of the British pound sterling was 31.2 per cent, that of the French franc 2.8
per cent and that of the Italian lira 1.8 per cent.

The militarisation of the economy of the capitalist countries furnishes one

of the most vivid demonstrations of the increasing parasitism and decay of
capitalism.
Even at the time of the first world war, Lenin, noting the rapid economic
development of the U.S.A., stressed that, for this very reason, the parasitic
features of modern American capitalism have stood out with particular
prominence. (Lenin, Imperialism, Selected Works, 1950 edition, vol. I, Pt. 2,
p. 565.) In the period since the second world war, these parasitic features of
American capitalism have intensified still further. This is especially graphically
shown in the growth of the States unproductive expenditure, caused by the
arms drive and the all-round militarisation of the national economy.
The parasitism and decay of capitalism does not mean in the least that
technical progress ceases and complete stagnation of technique sets in. The
characteristic tendency of monopoly to technical stagnation operates alongside
an opposite tendency, for technique to advance under the influence of
competition and the hunt for high monopoly profits. The arms drive brings
about an advance of technique in the branches concerned with armaments
production and the sections of heavy industry connected therewith. As a result
technique does not stand still in the capitalist countries but goes forward. But
the decay of capitalism shows itself in the fact that technical progress takes
place extremely unevenly and lags considerably behind the vast possibilities
opened up by the present level of development of science and technique.
The economic essence of militarisation of the economy consists in the
fact that, first, an ever-greater share of the finished products and raw
materials is absorbed by unproductive consumption connected with war
preparations or locked up in the form of huge strategic stocks; second, the
expansion of war production is carried out at the cost of a further lowering of
workers wages, ruin of the peasantry, increase in the tax burden and
plundering of the peoples of the colonial and dependent countries. All this
substantially reduces the purchasing power of the population, cuts down the
demand for the products of industry and agriculture, and leads to a sharp
contraction in civilian production. Thus, the militarisation of the economy of
the capitalist countries, aggravating the disproportion between the production
potentialities and the reduced effective demand of the population, leads
inevitably to the growth of the pre-requisites of a crisis of overproduction.
In connection with the aggravation of the general crisis of the world
capitalist system, further changes take place in the capitalist cycle. These
changes ensue from the break-up of the uniform world market and the
intensification of the uneven development of the capitalist countries. They are
connected with the inevitable consequences of the second world war and the
militarisation of the economy. War-inflation factors, i.e., the militarisation of the
economy and the inflation which accompanies it, temporarily hold back the
outbreak of crisis but cannot eliminate, or restrict the operation of the general
laws of capitalist reproduction which make crises unavoidable.
Since the U.S.A. on the one hand, and the main West European countries
on the other, came out of the war having suffered quite different economic
effects from it, the course of the capitalist cycle could not be the same through
the capitalist world. After the second world war ended, the volume industrial
production in the U.S.A., which had been inflated by war demand, fell sharply,
so that in 1946 it was 29 per cent less than in 1943. Later, in 1948-9, an
economic crisis occurred. It is significant that, on the eve of the crisis, in 1948,
American industry had not yet attained the highest peak of production during
the war period, the level of 1943. The crisis of 1948-9 affected to some extent
also a number of countries of Western Europe. From October 1948 to October
1949 the volume of American industrial production fell by 10 per cent.
Industrial production in the U.S.A. in 1949 amounted to only 35 per cent of
what it had been at the highest point in 1943 (engineering only 50 per cent).
This shrinking of production was accompanied by crisis phenomena in the fields
of commodity circulation, credit and foreign trade. These include piling up of
vast stocks of unrealisable commodities the decline in commercial transactions,
a sharp falling-off railway freights, some stock exchange failures, a fall in the
value of shares amounting to milliards of dollars, an increase in the number of
bankruptcies, and a reduction in the volume of Americas exports..
The war inflicted considerable damage upon the economies of the
principal capitalist countries of Western Europe and the restoration of this
damage held back for a definite period the growth of the prerequisites for an
overproduction crisis, so that the post-war years saw an increase in industrial
production in these countries. The crisis of 1948-9 in the U.S.A. did not lead to
a. general falling-off of production in Western Europe and, consequently, did
not develop into a world economic crisis.
The rapid increase of war expenditure in the United States and other
capitalist countries, especially after the outbreak of the war in Korea in 1950,
served as a temporary stimulus to the expansion of production, and first and
foremost to the production of armaments and other war material. However, the
one-sided character of this recovery made it unstable and short-lived. A fresh
falling-off of production, signifying a crisis, began as early as the middle of
1953. Within less than a yearfrom August 1953 to April 1954the volume of
industrial production in the U.S.A. declined by 10 per cent. The shrinkage of
production led to the doubling of the number of completely unemployed, to a
wave of bankruptcies and the swallowing up. of many smaller firms by the big
monopolies. Between April and November 1954 industrial production remained
at the same level, and only in November 1954 did it begin slowly to mount.
Thus, the course of reproduction in the second stage of the general crisis
of capitalism is marked by sharply-increasing unevenness of development as
between different countries, which brings special instability to the entire
economic system of capitalism. The prerequisites for a world economic crisis
continue to accumulate in all the capitalist countries.

Intensified Impoverishment of the Working Class

in the Capitalist Countries

The aggravation of the general crisis of capitalism which took place after
the second world war led to a further impoverishment of the proletariat.
Seeking maximum profits, the monopolies are increasing the exploitation of the
working people. Monopoly capital is transferring on to the backs of the working
people the ruinous consequences of the war and of militarisation of the
economy.
The monopolies supported, by the reactionary trade union leaders seek
to lower the workers real wages through freezing nominal wages, i.e.,
preventing them from rising in conditions in which inflation prevails and the
burden of taxation is growing. Inflation produces an increase in the cost of
living and a rapid rise in the prices of consumer goods, a widening of the gap
between nominal and real wages. External expansion and the militarisation of
the economy of the capitalist countries take place at the price of a burden of
taxation which weighs upon the working people. One of the factors in the
reduction of the standard of living of the working class is the rapid rise in rents.
The decline in real wages leads to a worsening of the nutrition of the working
population.
The position of the working intelligentsia in the capitalist countries is
deteriorating; unemployment is increasing amongst them, and their incomes
are falling as a result of the rise in the cost of living, the growth of taxation,
and inflation.

Real wages in the U.S.A. and Britain and especially in France and Italy have markedly
declined as compared with pre-war. Thus, for example, in France the purchasing power of the
average hourly wages was in 1955 about half what it had been before the war.
Along with the sharp fall in the purchasing power of money the cost of living grew
considerably in the capitalist countries in relation to the pre-war figures. In 1954 in the U.S.A.
it was 2.9 times pre-war, in France more than 30 times and in Italy more than 60 times.
In 1952, in spite of the increase in war production, there were reckoned to be in the
U.S.A. not less than 3 million wholly unemployed and 10 million partly, and in Western
Germany nearly 3 million wholly and partly unemployed. Italy had more than 2 million wholly
unemployed and an even larger number partly unemployed. In Japan there were about 10
million wholly and partly unemployed. In the U.S.A. at the beginning of 1954 the number of
wholly unemployed reached 3.7 millions, and that of partly unemployed 13.4 millions.
In the U,S.A. direct taxes in the 1953-4 budget year were nearly twelve times as great
as in the 1937-8 budget year, even if the fall in the purchasing power of money be taken into
account. In the Western European countries, where, too, the tax-burden was very heavy even
before the war, taxes likewise grew in this period; in Britain they were doubled, in France
multiplied by 2.5 and in Italy one and a half times. At the beginning of 1955 the rent paid by a
U.S. workers family was more than double what it had been in 1939.
According to figures issued by the Bureau of the Census, in 1949 in the U.S.A. 72.2 per
cent of all American families had incomes below the extremely meagre official subsistence
minimum; 34.3 per cent had incomes which were less than half of this minimum, 18.5 per cent
less than a quarter, and 9.4 per cent less than an eighth.

The worsening of the material situation of wide sections of the population

of the capitalist countries leads to a growth of unrest and discontent among the
masses, who react more and more actively against the oppression of monopoly
capital. This is expressed in an upsurge of the strike movement in the capitalist
countries, in a strengthening of the progressive trade unions which are united
in the World Federation of Trade Unions set up in 1945, in the growth of the
Communist Parties and extension of their mass influence, in the strengthening
of the political activity of the working class. The Communist Parties and
progressive trade unions, firmly rebuffing the splitting activity of the right-wing
Socialists and reactionary trade union leaders, are educating the working class
in the spirit of proletarian solidarity, in the spirit of struggle for liberation from
imperialist oppression.

Intensified Oppression by the Monopolies in the Agriculture

of the Capitalist Countries, and Impoverishment of the
 Peasantry

The aggravation of the general crisis of capitalism after the second world
war is marked by enhanced domination by the monopolies and finance-capital
in agriculture, the growth of differentiation among the peasantry and of
impoverishment of the bulk of them.
Finance capital takes possession of agriculture ever more widely and
deeply. The mortgage banks, which advance credit on the security of land,
become the de facto owners of the holdings of the ruined peasantry, together
with their implements and other chattels. The short-time credit banks and
insurance companies entangle the peasants in a net of indebtedness.
The monopolies make money for themselves out of the products of
agriculture at every stage of their passage from the producer to the consumer.
By fixing low prices for the produce which they buy from the small peasants
and screwing up retail prices to a high level, the monopolies appropriate a
substantial part of the peasants incomes. Huge profits are received at the
expense of the bulk of the peasants by the monopolies engaged in the
processing of agricultural produce (in the flour-milling, meat, tinned food and
sugar industries). The measures taken by the State-tax policy, wholesale
buying operations and other forms of so-called aid to agricultureresult in
ever greater enrichment of the monopolies and impoverishment of the bulk of
the peasantry. The exploitation of the peasants by the monopolies is combined
with very numerous survivals of the serf-owning type of exploitation and above
all with share-cropping, under which the tenant is obliged to hand over to the
landowner a considerable share of his crop as rent for land and implements.

In the U.S.A, the proportion of the total land occupied by large and very large farms,
over 500 acres in extent (which amounted in 1950 to less than 6 per cent of all the farms),
grew from 44.9 per cent in 1940 to 53.5 per cent in 1950, while the share occupied by
latifundia with an extent greater than 1,000 acres grew from 34.3 per cent to 42.6 per cent.
According to the data of the 1950 census, 44 per cent of all the farms (in value of marketable
produce accounting for less than 1,200 dollars each) produced less than 5 per cent, of all the
marketable produce, i.e., they were primitive, poorly-productive, subsistence farms, while
103,000 large farms (25,000 dollars worth, or more, of marketable produce each), which
made up only 2 per cent of the total, contributed 26 per cent of the marketable produce of U.S.
agriculture. In France in 1950 small farms, twenty-five acres or less in extent, which made up
56.7 per cent of all the farms, comprised only 16.1 per cent of all the agricultural land, while
large farms, numbering 4.4 per cent of the total, made up 29.9 per cent of it. In Western
Germany small farms with an area not exceeding 12.5 acres, which in 1949 made up 55.8 per
cent of all the farms, had only 11 per cent of all the land, while 0.7 per cent of the large farms
accounted for 27.7 per cent of it. In Italy there are 2.5 million landless peasants and 1.7
million who have little land. During the decade 1940 to 1950 over 700,000 farm households
were ruined.
The total amount of ground-rent in the U.S.A. grew from 760 million dollars in 1937 to
2.1 milliard dollars in 1952. In Italy a few hundred landlords drew every year 450 milliard lire
in ground-rent, whereas the wages of 2.5 million agricultural labourers amounted only to 250
milliard lire. The total indebtedness of American farmers to the banks and other credit
institutions more than doubled in 1946-54, reaching the figure of 18 milliard dollars by January
1, 1955. The property tax on the farm population was in 1953 2.3 times as high as in 1942.

Since the second world war the increase in the impoverishment of the
working class and the peasantry in the capitalist countries and the vast
expenditures which these countries are making on armaments have brought
about a decline in effective demand and in the market for agricultural produce.
In connection with this, stocks and surpluses of agricultural goods for which
no outlet can be found are increasing in the capitalist countries, cultivated
areas are shrinking, the earnings of the bulk of the peasantry from the sale of
their produce are sharply declining, a mass-scale ruination of petty producers
is taking place, and a vast quantity of foodstuffs is being destroyedat the
same time as the consumption of foodstuffs by the working masses is falling
and they are actually going without essential food. All this is preparing the way
for the onset of a fresh agrarian crisis.

Transient stocks of wheat in the U.S.A. in 1954 were 2.4 times the highest level of
stocks during the crisis of 1929-33 and were more than 7 times as great as the average annual
stocks of 1946-8. In order to keep prices of foodstuffs at their inflated level, State agencies in
the U.S.A. buy up huge quantities of gram, cotton, potatoes and livestock products and
systematically destroy part of these stocks.
In 1954 the net income of U.S.A. farmers was 4.6 milliard dollars, or 36 per cent less
than their average annual income in 1946-8.

*
* *

The further aggravation of the general crisis of capitalism since the

second world war is marked by a sharpening of the antagonisms of capitalist
society. The contradiction between societys productive forces and the capitalist
relations of production, which has reached its farthest limits, shows graphically
that history has doomed the bourgeois system, which has outlived itself.
The second stage of the general crisis of capitalism has brought with it an
aggravation of the crisis of bourgeois democracy. The anti-popular and anti-
national character of bourgeois rule is showing itself with increasing frankness.
The reactionary circles of the bourgeoisie are seeking their way out from the
general crisis of capitalism by the path of war and the fascisation of political
life.
The masses of the people in the capitalist countries, marching under the
banner of proletarian internationalism, are seeking their way out of the
situation through active and resolute struggle against the entire system of
imperialist slavery and for national and social liberation.

Proletarian, socialist internationalism is the basis of the solidarity

of the working people and of co-operation between the peoples in the
cause of defending their independence from the attempts made upon it
by imperialism, in the defence of peace. It teaches the workers to unite
their forces in every country in order to fight against the rule of capital,
to bring about a transition to socialist economy. It teaches the working
class and the peoples to develop mutual of links of international
solidarity, in order the better to carry forward the fight for peace, to
isolate and render harmless those who are fomenting another war. (P.
Togliatti, The Unity of Working Class and the Tasks of the Communist
and Work Parties, For a Lasting Peace, for Peoples Democracy,
December 2, 1949.)
 After the first world war Russia broke away from the capitalist system;
after the second world war a whole series of countries in Europe and Asia
broke away; and a third world war, should the imperialists manage to start
one, would inevitably result in the downfall of the entire world capitalist
system. In such a war the imperialist aggressors would not only clash with the
invincible might of the States of the socialist camp. They would find themselves
confronted with an explosion of all the sharpest contradictions inherent in
present-day capitalismbetween labour and capital, between the imperialist
Powers, between the metropolitan countries and the colonies.
The progressive, democratic forces of the peoples, headed by the
working class and its vanguard, the Communist Parties, are uniting in active
opposition to imperialist reaction, the fascist danger and the plans for fresh
wars. The peace-loving policy of the Soviet Union, the Chinese Peoples
Republic and the other countries of the socialist camp, directed towards the
easing of international tension, has led to the ending of the war in Korea, the
restoration of peace in Indochina and the conclusion of the State treaty with
Austria. At the Geneva meeting of the heads of government of the four Powers
the Soviet Union, the U.S.A., Britain and Franceheld in June 1955, definite
successes were achieved in the direction of improving the international
situation and establishing co-operation between States with different economic
and social systems. The camp of peace, democracy and socialism, headed by
the Soviet Union and the Chinese Peoples Republic, unites the 900 million
inhabitants of the countries which have broken away from the capitalist
system. This camp constitutes a powerful force which exercises a decisive
influence on the entire course of current history.

BRIEF CONCLUSIONS
(1) In the period of the second world war, especially after the falling
away from the capitalist system of the Peoples Democracies of Europe and
Asia, the general crisis of capitalism developed to its second stage. As a result
of the formation of two opposing camps in the international arena, a split took
place in the single, all-embracing world market and two parallel markets were
formed: the market of the countries of the socialist camp and the market of
the countries of the capitalist camp. The sphere of access by the forces of the
chief capitalist countriesU.S.A., Britain, Franceto the worlds resources was
notably reduced.
(2) One of the principal results of the second world war has been the
sharp aggravation of the crisis of the colonial system of imperialism. An
upsurge of the national liberation struggle in the colonial and dependent
countries has led to the beginning of the break-up of the colonial system, to
the breaking away of China and a number of other countries from the world
system of imperialism.
(3) The further intensification of the unevenness of the development of
the capitalist countries inevitably produces an aggravation of. the internal
contradictions in the camp of imperialism. The militarisation of the economy
causes the gap to widen between the production potentialities of industry in
the capitalist countries and the possibilities for disposing of their goods, and by
so doing prepares the way for the onset of a fresh economic crisis.
(4) The second stage of the general crisis of capitalism is marked by a
further deterioration in the material position of the broad masses of the
working people. This is expressed in the decline in the real wages of the
working class, the increase in the permanent army of unemployed, the
extensive introduction of sweating systems, inflation and rise in the cost of
living, increase in the burden of taxation, the worsening of the position of the
bulk of the peasantry in the capitalist countries and intensified exploitation of
the colonies. The strengthening of the camp of peace, democracy and
socialism, the weakening of the imperialist camp of reaction and war, the
upsurge in the struggle of the working class, the peasantry and the colonial
peoples for freedom testify that the present epoch is the historic epoch of the
downfall of capitalism, of the victory of communism.
 ECONOMIC DOCTRINES OF THE CAPITALIST
EPOCH
With the development of capitalism and the growth of its contradictions
various trends of economic thought were formed and developed, expressing
the interests of different classes.

Bourgeois Classical Political Economy

In the struggle against feudalism and for the establishment of the

capitalist order the bourgeoisie created its own political economy, which
discredited the economic views of the ideologues of feudalism and for a certain
period played a progressive role.
The capitalist mode of production was established first of all in Britain.
Here also was born bourgeois classical political economy whose representatives
tried to discover the internal connections between economic phenomena.
Already the founder of bourgeois classical political economy, WILLIAM PETTY
(1623-87), who was active in the period when mercantilism was breaking
down, essentially defined the value of commodities by the comparative amount
of labour contained in them, though , much inconsistency was shown regarding
this question.
An important role in the formation of bourgeois political economy was
played by the physiocrats. This trend was headed by FRANOIS QUESNAY
(1694-1774). The physiocrats arose in France in the second half of the
eighteenth century, in the period when the bourgeois revolution was being
prepared in the world of ideas. Like the French philosophers of the
Enlightenment in the same period, the physiocrats laid it down that natural
laws of human society exist, established by Nature. France was at that time an
agricultural country. In contrast to the mercantilists, who saw wealth only in
money, the physiocrats declared the sole source of wealth to be Nature, and
consequently agriculture, which supplies man with the fruits of Nature. Hence
also the name of the schoolphysiocrats, formed from two Greek words
meaning Nature and rule.
The central place in the physiocrats theory was occupied by the doctrine
of the produit net. This was what the physiocrats called the entire surplus of
production over and above the expenditure incurred in productionthat part of
the production in which, under capitalism, the surplus-value finds embodiment.
The physiocrats understood wealth as a definite mass of products in their real,
material form, as a definite mass of use-values. They declared that the produit
net, as a gift of nature, arises exclusively on the basis of the use of wage-
labour in agriculture and stock-breeding, i.e., in those branches of production
where the natural processes of growth of plants and animals take place, while
all other branches merely change the form of the products supplied by
agriculture.
The most noteworthy work of the physiocratic school was Quesnays
Tableau conomique. The service rendered by Quesnay consisted in the fact
that he made a remarkable attempt to depict the process of capitalist
reproduction as a whole even though he could not furnish a scientific theory of
reproduction.
Proceeding from the idea that the produit net is created only in
agriculture, the physiocrats demanded that all taxes be imposed on
landowners, while manufacturers should be freed from tax burdens. This
demand of the physiocrats showed clearly their class character as ideologues of
the bourgeoisie. The physicrats were supporters of the unlimited domination of
private property. Affirming that only free competition corresponds to the
natural laws of economy and to human nature they counterposed to the policy
of protectionism the policy of free trade, and fought resolutely against guild
restrictions and against social interference by the State in the countrys
economic life.
Bourgeois classical political economy attained the peak of its
development in the works of A. Smith and D. Ricardo.
ADAM SMITH (1723-90) took a notable step forward compared with the
physiocrats, in the scientific analysis of the capitalist mode of production. His
fundamental work was An Inquiry into the Nature and Causes of the Wealth of
Nations (1776). In Smiths opinion, a countrys wealth consists in the entire
mass of commodities produced in it. He rejected the one-sided and therefore
incorrect conception of the physiocrats that the produit net is created only by
agricultural labour and was the first to proclaim as the source of value all
labour, in no matter which branch of production it might be expended. Smith
was an economist of the period of manufacture in the development of
capitalism, and for this reason he saw the basis of the increase in the
productivity of labour in the division of labour.
Characteristic of Smith was the interweaving of two different approaches
to economic phenomena. On the one hand, Smith inquired into the internal
connections of phenomena, trying to penetrate with his analysis into the
hidden structure or, to use Marxs expression, the physiology of the bourgeois
economic system. On the other hand, Smith gave a description of phenomena
in the form in which they made their appearance on the surface of capitalist
society and, consequently, as they seemed to the practical capitalist. The first
of these ways of understanding reality is scientific, the second is unscientific.
Investigating the internal connections of the phenomena of capitalism,
Smith defined the value of a commodity by the amount of labour expended on
producing it; in so doing he looked upon the wages of the wage-worker as part
of the product of his labour, determined by the value of his means of livelihood,
and profit and rent as deductions from the product created by the workers
labour. However, Smith did not maintain this point of view consistently. Smith
continually confused the determination of the value of commodities by the
labour included in them with the determination of the value of commodities by
the value of labour. He asserted that the determination of value by labour
belongs only to the primitive state of society, by which he meant the simple
commodity production of petty producers. Under capitalist conditions the value
of a commodity is made up of incomes: wages, profit and rent. An assertion
such as this reflected the misleading appearance assumed by phenomena in
capitalist economy. Smith considered that the value of the social product as a
whole also consisted only of incomeswages, profit and rent; i.e., he made the
mistake of leaving out the value of the constant capital which is used up in
producing a commodity. This Smith dogma made it quite impossible to
understand the process of social reproduction.
Smith was the first to describe the class structure of capitalist society. He
showed that it is divided into three classes: (1) workers, (2) capitalists and (3)
landowners. But Smith was limited by his bourgeois world-outlook and his
views reflected the undeveloped class struggle of the epoch: he claimed that in
a capitalist society a community of interests prevails, inasmuch as each
pursues his own advantage, and from the clash between all these separate
strivings the common benefit arises. Resolutely combating both the theoretical
views and the policies of the mercantilists, Smith warmly supported free
competition.
In the works of DAVID RICARDO (1772-1823) bourgeois classical political
economy reached its perfection. Ricardo lived in the period of the industrial
revolution in Britain. His principal work, On the Principles of Political Economy
and Taxation, came out in 1817.
Ricardo worked out the labour theory of value with the maximum
consistency possible within the framework of a bourgeois outlook. Rejecting
Smiths thesis that value is determined by labour only in the primitive state of
society, he showed that the value created by the workers labour is the source
from which arise wages, rent and profit alike.
Proceeding from the idea that value is determined by labour, Ricardo
showed the antagonism of class interests in bourgeois society, as it manifests
itself in the sphere of distribution. Ricardo regarded the existence of classes as
an eternal feature of the life of society. In Marxs words, Ricardo consciously
makes the antagonism of class interests, of wages and profits, of profits and
rent, the starting-point of his investigations, naively taking this antagonism for
a law of nature. (Marx, Capital, Kerr edition, vol. I, pp. 17-18.) Ricardo
formulated an important economic law: the higher the workers wages the
lower the capitalists profit, and vice versa. Ricardo also showed the
antagonism between profit and rent; but he went wrong in acknowledging the
existence only of differential rent, which he linked with the imaginary law of
diminishing returns from the soil.
Ricardo played a great role in the development of political economy. His
doctrine that value is determined by labour alone was of outstanding historical
importance. Observing the growth of capitalist contradictions, some of his
followers began to draw the conclusion: since value is created by labour alone,
it is necessary and just that the worker, creator of all wealth, should also be
the master of all wealth, of all the products of labour. A demand like this was
put forward in Britain in the first half of the nineteenth century by the early
Socialists, who were followers of Ricardo.
At the same time, Ricardos doctrines contained elements of bourgeois
limitedness. The capitalist system with its antagonistic class interests seemed
to Ricardo, as to Smith, a natural and eternal system. Ricardo did not even
raise the question of the historical origin of such economic categories as the
commodity, money, capital, profit, etc. He understood capital unhistorically,
identifying it with means of production.

The Rise of Vulgar Political Economy

With the development of capitalism and the sharpening of the class

struggle, classical bourgeois political economy gave place to vulgar political
economy. Marx called it vulgar because its spokesmen substituted for the
scientific cognition of economic phenomena mere description of the outward
appearance of these phenomena, having as their. aim the embellishment of
capitalism and the slurring-over of its. contradictions. The vulgar economists
threw out everything that was scientific, while snatching at everything that was
unscientific in the views of earlier economists (especially A. Smith)everything
which had been determined by the class limitations of their outlook.

It was thenceforth no longer a question whether this theorem or

that was true, but whether it was useful to capital or harmful, expedient
or inexpedient, politically dangerous or not. In place of disinterested
inquiries there were hired prizefighters; in place of genuine scientific
research, the bad conscience and the evil intent of apologetic; Marx,
Capital, Kerr edition, vol. I, p. 19.)

In the sphere of the theory of value, vulgar economy put forward, in

opposition to the determination of value by labour time, a number of
propositions which had already been refuted by the bourgeois classical school.
Amongst these were: the theory of supply and demand, which ignores the
value underlying prices and for the explanation of the very basis of prices
substitutes a description of the fluctuations of these prices; the theory of costs
of production, which explains thee prices of some commodities by means of the
prices of others, i.e., in fact turns round in a vicious circle; the theory of utility,
which, trying to explain the value of commodities from their use-value, ignores
the fact that the use-values of different commodities are qualitatively different
and therefore cannot be compared quantitatively.
The English vulgar economist T.R. MALTHUS (1766-1834) put forward the
fabrication that the poverty of the masses of the working people which is
inherent in capitalism is due to the fact that people multiply faster than the
amount of means of life provided by nature can be increased. According to
Malthus, the necessary correspondence between the numbers of the population
and the quantity of means of life supplied by Nature is brought about through
famine, poverty, epidemics and wars. Malthuss man-hating theory was formed
for the purpose of justifying the social order under which the parasitism and
luxury of the exploiting classes exist side by side with the exhausting labour
and increasing want of the broad masses of the working people.
The French vulgar economist J.B. SAY (1767-1832) declared the source
of value to be the three factors of productionlabour, capital and land, and
drew the conclusion therefrom that the owners of each of these three factors of
production receive the incomes due to them: the worker his wages, the
capitalist his profit (or interest), the landowner his rent. The three factors
theory, which became widespread in bourgeois political economy, had the
function of concealing the decisive circumstance that it is only in certain social
conditions that labour is transformed into wage-labour, that the means of
production become capital, and that property in land becomes a source of rent.
Capital and land provide revenue for their owners, of course, only by virtue of
the fact that the worker creates surplus-value by his unpaid labour, and this is
the real source of all unearned incomes in capital society. Affirming that under
capitalism there is no contradiction between production and consumption, Say
denied that general crises of overproduction were possible. Says theory was a
crude distortion of reality to please the exploiting classes. Fantasies about the
harmony of class interests under capitalism were zealously propagated by the
French economist F. BASTIAT (1801-50) and the American CH. CAREY (1793-
1879). Under the pretext of defending bourgeois freedom of labour vulgar
political economy carried on a fierce struggle against trade unions, collective
agreements and strikes. From the second quarter of the nineteenth century
onward, vulgar political economy became predominant in bourgeois economic
science.

Petty-bourgeois Political Economy

At the beginning of the nineteenth century there arose a petty-bourgeois

trend in political economy, which reflected the contradictory position of the
petty-bourgeoisie as the intermediate class of capitalist society. Petty-
bourgeois political economy begins with the Swiss economist S. SISMONDI
(1773-1842). Unlike Smith and Ricardo, who regarded the capitalist system as
the natural state of society, Sismondi undertook a critique of capitalism, which
he condemned from the standpoint of the petty-bourgeoisie. Sismondi idealised
the petty commodity production of peasants and handicraftsmen and, failing to
see the inevitable growth of the capitalist relations inherent in petty commodity
production, put forward utopian projects for perpetuating small property. From
the fact that the incomes of the workers and petty producers decline Sismondi
drew the erroneous conclusion that the market inevitably shrinks as capitalism
develops. He wrongly claimed that accumulation of capital was possible only
given the existence of petty producers and foreign markets.
The ideas of petty-bourgeois political economy were developed in France
by P.J. PROUOHON (1809-1865). He upheld the reactionary idea that all the
social evils of capitalism could be eliminated by setting up a special bank,
which would carry out the exchange of goods between petty producers without
using money and would grant free credit to the workers. Proudhon sowed
reformist illusions among the working-class masses and deflected them from
the class struggle.
In Russia at the end of the nineteenth century the reactionary ideas of
petty-bourgeois political economy were propagated by the liberal Narodniks.

The Utopian Socialists

With the rise and development of large-scale machine industry at the end
of the eighteenth and beginning of the nineteenth centuries the contradictions
of capitalism and the miseries which it brings to the working masses became
increasingly apparent. But the working class was still not conscious of its
historical role as capitalisms grave-digger. It was in this period that the great
Utopian Socialists emerged: HENRI SAINT-SIMON (I760-1825) and CHARLES
FOURIER (1772-1837) in France and ROBERT OWEN (1771-1858) in Britain,
who played a big part in the history of the development of socialist ideas.
In their explanation of economic phenomena the Utopian Socialists did
not depart from the basis of the eighteenth century philosophers of the
Enlightenment, which had been that of the spokesmen of bourgeois classical
political economy. But whereas the latter regarded the capitalist system as
corresponding to human nature, the Utopian Socialists looked upon it as
contradicting human nature.
The historical importance of the Utopian Socialists is that they subjected
bourgeois society to vigorous criticism, ruthlessly castigating such ulcers upon
it as the poverty and privations of the mass of the people condemned to heavy
and exhausting labour, the venality and degeneration of the rich upper strata of
society, the vast squandering of productive forces as a result of competition,
crises and so on. They made a number of guesses about the nature of the
socialist system, which they counterposed to capitalism. But the Utopian
Socialists were far from understanding the actual ways leading to the
realisation of socialism. Being ignorant of the laws of social development, the
laws of the class struggle, they thought that the possessing classes themselves
would introduce socialism when they had succeeded in convincing them of the
reasonableness, justice and expediency of this new system. Understanding of
the historical role of the proletariat was completely alien to the Utopian
Socialists. Utopian Socialism

could not explain the essence of wage-slavery under capitalism,

nor discover the laws of the latters development, nor point to the social
force which is capable of becoming the creator of a new society. (Lenin,
The Three Sources and Three Component Parts of Marxism, Selected
Works, 1950 edition, vol. I, Pt. I, p. 80.)

The Revolutionary Democrats in Russia

In the middle of the nineteenth century there appeared in

Russia, which was then in the throes of the crisis of serfdom, a brilliant
constellation of thinkers who made a great contribution to the development of
economic science.
A. I. HERZEN (1812-70) denounced Tsarism and serfdom in Russia and
summoned the people to revolutionary struggle against it. He also sharply
criticised the capitalist system of exploitation which had been established in the
West. Herzen was the initiator of Utopian peasant Socialism. He saw
socialism in the emancipation of the peasants with land, in communal
ownership of land and in the peasant idea of the right to the land. There was
actually nothing socialist in these views of Herzens, but they expressed the
revolutionary strivings of Russias peasantry, who were fighting to overthrow
the rule of the landlords and to abolish landlord ownership of land.
 Very great services to the development of economic science were
rendered by the great Russian revolutionary and scholar N.G.
CHERNYSHEVSKY (1828-89). Chernyshevsky headed the struggle of the
revolutionary democrats against serfdom and Tsarist autocracy in Russia. He
produced a brilliant critique not only of serfdom but also of the capitalist
system, which had become consolidated by then in Western Europe and North
America. Chernyshevsky thoroughly exposed the class nature and limitedness
of bourgeois classical political economy and subjected to annihilating criticism
the vulgar economists, John Stuart Mill, Say, Malthus and others. In Marxs
estimation, N.G. Chernyshevsky elucidated the bankruptcy of bourgeois
political economy in masterly fashion.
To bourgeois political economy, which serves the mercenary interest of
the capitalists, Chernyshevsky counterposed the political economy of the
working people, the central place in which should be taken by labour and the
interests of the working people. Being a representative of Utopian peasant
socialism, Chernyshevsky did not see, owing to the undeveloped state of
capitalist relations in the Russia of his day, that the development of capitalism
and of the proletariat creates the material conditions and the social force for
the realisation of socialism. But in his understanding of the nature of capitalist
society and its class structure, the character of its economic development,
Chernyshevsky went much further than the West-European Utopian Socialists
and took a long stride along the path to scientific socialism. Unlike the Utopian
Socialists of the West, Chernyshevsky ascribed decisive significance to the
revolutionary activity of the working masses, their fight for their own liberation,
and called for a peoples revolution against the exploiters. Chernyshevsky was
a consistent, militant revolutionary democrat Lenin wrote that the spirit of the
class struggle breathes from the pages of his works.
The economic teaching of Chernyshevsky was the culmination of the
whole development of political economy before Marx. In his philosophical
views, Chernyshevsky was a militant materialist. Like Herzen, he came close to
dialectical materialism.
The revolutionary democrats Herzen, Chernyshevsky and those who
shared their views were the forerunners of Russian Social-Democracy.

The Revolutionary Transformation in Political Economy

effected by K. Marx and F. Engels

By the middle of the nineteenth century the capitalist system of economy

had become predominant in the principal countries of Western Europe and in
the U.S.A. The proletariat had taken shape and had begun to advance to battle
against the bourgeoisie. The conditions had arisen for the formation of an
advanced proletarian world outlookScientific Socialism.
KARL MARX (1818-83) and FRIEDRICH ENGELS (1820-95) transformed
socialism from utopia into science. The teachings elaborated by Marx and
Engels express the fundamental interests of the working class and are the
battle-flag of the proletarian masses for the revolutionary overthrow of
capitalism and the triumph of socialism.
 Marxs teaching arose as the direct immediate continuation of the
teaching .of the greatest representatives of philosophy, political economy and
socialism. (Lenin, The Three Sources and Three Component Parts of
Marxism, Selected Works, 1950 edition, vol. I, Pt. I, p. 75.)
Marxs genius consists, as Lenin showed, precisely in his having given the
answers to questions which the advanced thinkers of mankind had already
asked. His teaching is the rightful heir of the best that had been created by
mans thought in the field of the science of human society. At the same time
the rise of Marxism was a fundamental revolutionary transformation in
philosophy, in political economy and in all the social sciences. Marx and Engels
equipped the working class with an integrated and systematic world-outlook
dialectical materialism, which is the theoretical foundation of scientific
communism. Extending dialectical materialism to the of field of social
phenomena, they created historical materialism, which is the greatest triumph
of scientific thought. To the non-historical approach to human society, they
counterposed the historical approach, based on a profound study of the actual
course of development. The previously dominant notion of society as
unchanging and static they replaced by a systematic teaching which laid bare
the objective laws of social developmentthe laws of the replacement of some
forms of society by others.
Marx and Engels were the founders of genuinely scientific political
economy. In applying the method of dialectical materialism to the investigation
of economic relations, Marx effected a thorough-going revolution in political
economy. Approaching political economy as the ideologist of the working class
Marx conclusively exposed the contradictions of capitalism and created
proletarian political economy. Marx formed his economic doctrine in the course
of irreconcilable struggle against bourgeois apologists for capitalism and petty-
bourgeois criticism of it. While utilising and developing a number of
propositions of the classical bourgeois economists, Smith and Ricardo, Marx
resolutely overcame the anti-scientific views and contradictions which were
contained in their teachings. In his economic teaching Marx summed up and
generalised an enormous amount of material on the history of human society
and especially on the history of the rise and development of capitalism. To
Marx is due the discovery of the historically transient character of the capitalist
mode of production and the investigation of the laws of the rise, development
and fall of capitalism. On the basis of a profound economic analysis of the
capitalist system Marx established the historical mission of the proletariat as
the grave-digger of capitalism and the builder of a new, socialist society.
The foundations of the Marxist world-outlook were proclaimed already in
the first programme document of scientific Communismthe Manifesto of the
Communist Party, written by Marx and Engels in 1848. Marx published the
results of his further economic investigations in his work A Contribution to the
Critique of Political Economy (1859), devoted to an analysis of commodities
and money; in the foreword to this book he gave a classical exposition of the
principles of historical materialism. Marxs principal work, which with perfect
justification he called his life work, is Capital. The first volume of Capital (The
Process of Capitalist Production) was published by Marx in 1867; the second
volume (The Process of Capitalist Circulation) was published by Engels after
Marxs death, in 1885, and the third volume (The Process of Capitalist
Production as a Whole) in 1894. When working on Capital, Marx planned to
write a fourth volume, devoted to a critical review of the history of political
economy. The preparatory drafts which he left when he died were published
after the death of Marx and Engels under the title of Theories of Surplus Value
(in three volumes).
A number of classical works by Engels were also devoted to the working-
out of the theory of scientific Communism. Amongst these are: The Condition
of the Working Class in England (1845); Anti-Dhring (1878), in which are
reviewed the most important questions in the fields of philosophy, natural
science and the social sciences; The Origin of the Family, Private Property and
the State (1884) and, others.
In founding proletarian political economy, Marx first and foremost
substantiated and consistently developed the labour theory of value.
Investigating the commodity and the contradiction between its use-value and
its value, Marx revealed that the labour incorporated in a commodity is twofold
in character. On the one hand ids concrete labour, creating the use-value of the
commodity, and on the other it is abstract labour, creating the commoditys
value. His discovery of the twofold character of labour served Marx as the key
to the scientific explanation of all the phenomena of the capitalist mode of
production on the basis of the labour theory of value. By showing that value is
not a thing but a production-relationship between people, concealed under the
appearance of a thing, Marx revealed the secret of commodity fetishism. He
analysed the form taken by value and investigated its historical development
from the first rudimentary forms of exchange down to the complete dominance
of commodity production, and this enabled him to discover the true nature of
money.
The labour theory of value furnished Marx with the basis for his teaching
on surplus-value. Marx was the first to show that under capitalism it is not
labour that is a commodity, but labour-power. He investigated the value and
use-value of this particular commodity and elucidated the nature of capitalist
exploitation. Marks theory of surplus-value completely reveals the essence of
the basic production relationship of capitalismthe relation between capitalists
and workers, and lays bare the very foundations of class antithesis and class
struggle between proletariat and bourgeoisie.
Marx did not only reveal the origin and source of surplus-value, he also
showed how capitalist exploitation is disguised and concealed. He inquired into
the essential nature of wages as the price of labour-power, appearing in
transmuted form as the price of labour.
Marx analysed in profoundly scientific fashion the various forms which
surplus-value assumes. He showed how surplus-value appears in transmuted
formin the form of profit, and how it then further takes the form of ground-
rent and interest. Moreover, the deceptive appearance is created that wages
are the price of labour, that profit is begotten by capital itself, ground-rent by
land and interest by money.
In his teaching on the price of production and average profit Marx
resolved the contradiction which exists in the circumstance that under
capitalism market prices diverge from values. At the same time he revealed the
objective basis of the class solidarity of the capitalists as regards the
exploitation of the workers inasmuch as the average, profit received by each
capitalist is determined by the level of exploitation not in the particular
enterprise but in capitalist society as a whole.
Marx worked out the theory of differential rent and was the first to give a
scientific foundation to the theory of absolute rent. He showed the reactionary,
parasitic role of large-scale landownership and the essence and forms of the
exploitation of the peasants by the landlords and bourgeoisie.
Marx was the first to discover the laws of the accumulation of capital,
establishing that the development of capitalism, with the concentration and
centralisation of capital, inevitably leads to deepening and sharpening of the
contradictions characteristic of this system, at the basis of which lies the
contradiction between the social character of production and the private,
capitalist form of appropriation. Marx revealed the general law of capitalist
accumulation, which causes the growth of wealth and luxury at one pole of
society and the growth of poverty, oppression and exhausting labour at the
other pole. He showed that with the development of capitalism there takes
place a relative and an absolute impoverishment of the proletariat, which
results in the gulf between proletariat and bourgeoisie deepening and the class
struggle between them becoming sharper. Of the very greatest importance was
the analysis which Marx provided of the reproduction of the entire social
capital. Eliminating Smiths error of ignoring the constant capital used up in the
production of a commodity, and establishing the division of the social product,
so far as its value is concerned, into three parts (c+v+s), and, as regards its
material form, into means, of production and consumer goods, Marx discovered
the general economic law by which the development of the productive forces.
takes place in any form of society, by way of a more rapid growth. of the
production of means of production as compared with that of Consumer goods.
Marx analysed the conditions for simple and extended capitalist reproduction
and the deep-going contradictions of capitalist realisation which lead inevitably
to crises of overproduction. He examined the nature of economic crises and
showed scientifically that they are inevitable under capitalism.
The economic teaching of Marx and Engels provides a thorough and
comprehensive proof of the inevitability of the downfall of capitalism and the
triumph of the proletarian revolution, which sets up the dictatorship of the
working class and opens a new era, the era of the building of socialist society.
As early as the 1870s and 1880s, Marxism began to be ever more
widely accepted among the working class and the advanced intelligentsia of the
capitalist countries. A great part in spreading the ideas of Marxism was played
in those years by PAUL (LAFARGUE (1842-1911) in France, WILHELM
LIEBKNECHT (1826-1900) and AUGUST BEBEL (1840-1913) in Germany, G.V.
PLEKHANOV (1856-1918) in Russia, DMITRI BLAGOEV (1855-1924) in Bulgaria
and other outstanding figures of the working-class movement in other
countries.
In Russia the Marxist workers party and its world-outlook were formed in
uncompromising struggle against opponents of Marxism, such as Narodism.
The Narodniks denied the leading role of the proletariat in the revolutionary
movement, they declared that it was impossible for capitalism to develop in
Russia. The Narodniks were opposed by Plekhanov and the Liberation of
Labour group which he organised. Plekhanov was the first to give a Marxist
critique of the Narodniks mistaken ideas and at the same time he set forth a
brilliant defence of Marxist views. Plekhanovs activity in the 1880s and 1890s
was of great importance for the ideological training of Russias proletarian
revolutionaries. Plekhanov produced a number. of outstanding works on the
philosophy of Marxism. He successfully popularised in a number of works
particular aspects of Marxs economic teaching, and defended this teaching
against bourgeois criticism and reformist distortions. Plekhanovs writings
effectively undermined the foundations of the Narodniks position. But the
ideological rout of Narodism was not completed. Even in the early period of his
activity, Plekhanov had an incorrect understanding of a number of questions,
which was the embryo of his later Menshevik views: he did not allow for the
prqletariats need to draw the peasantry behind it in the course of the
revolution, he looked upon the liberal bourgeoisie as a force which would
support the revolution, etc. The task of finishing off Narodism as the enemy of
Marxism and uniting Marxism with the working-class movement in Russia was
carried out by Lenin.

The Further Degeneration of Bourgeois Economic Science.

Present-day Bourgeois Political Economy

From the time that Marxism first appeared in the historical arena, the
fundamental and decisive task before bourgeois economists has been the
refutation of Marxism. All sorts of idealistic philosophies and subjective
sociologies have provided the logical basis of the various schools and
tendencies in bourgeois political economy.
There arose in Germany in the middle of the nineteenth century the so-
called historical school of political economy (W. ROSCHER, B. HILDEBRANDT,
etc.). The spokesmen of this school openly denied that any economic laws of
social development exist and substituted for scientific inquiry the description of
separate historical facts. Their denial of economic laws provided these
economists with the justification for each and every arbitrary act on the part of
reaction; and for their own grovelling before. the military-bureaucratic State,
which they extolled in every way. Later representatives of the historical school,
headed by G. SCHMOLLER, formed the so-called historico-ethical or historico-
legal trend. The characteristic feature of this trend was the replacement of
economic investigation by reactionary, idealist dissertations about moral
purposes, legal norms, etc. Certain economists of the historical school such as
Hildebrand, together with other bourgeois economist; (ADOLF WAGNER, L.
BRENTANO, W. SOMBART) formed in 1872 the so called Social Policy League
for the purpose of preaching social reforms from their professorial chairs, with
the aim of preventing the downfall of the capitalist system. Continuing the
traditions of their predecessors, the representatives of this tendency, which
was ironically called Kathedersozialismus (literally, socialism of the
professorial chair), functioned as lackeys of the militarist German State. Some
of them interpreted every measure taken by this State as a piece of
socialism. The socialists of the professorial chair glorified the reactionary
policy followed by Bismarck and helped him to deceive the working class.
In the last decades of the nineteenth century, as Marxist ideas continued
to spread, the bourgeoisie needed new ideological means of struggle against
them. The so-called Austrian School then made its bow. The name of this
school is connected with the fact that its principal spokesmen, K. MENGER, E.
WIESER and E. BHM-BAWERK, were professors at Austrian universities.
Unlike the historical trend, the spokesmen of the Austrian school gave formal
acknowledgement to the need to investigate economic laws, but in order to
embellish and defend the capitalist order they transferred the search for these
laws from the sphere of social relations to the field of subjective psychology,
i.e., they took the road of idealism.
In the field of the theory of value the Austrian school put forward the so-
called principle of marginal utility. According to this principle the value of a
commodity is determined not simply by its utility, as certain vulgar economists
had previously asserted, but by its marginal utility, i.e., by the least urgent of
the needs of the individual which the given commodity unit satisfies. In fact,
this theory explains nothing. It is quite obvious, for example, that the
subjective evaluation of a kilogramme of bread is utterly different as between a
sated bourgeois and a hungry unemployed man, yet they both pay the same
price for this bread. To Marxs theory of surplus-value the economists of the
Austrian school counterposed one form or another of the theory of the
productivity of capital, which is merely a refurbished form of the vulgar theory
of the three factors of production.
The transition to imperialism and the extreme sharpening of social
contradictions and class struggle connected with this led to a further
degradation of bourgeois political economy. After the victory of the socialist
revolution in Russia, which refuted in practice the assertions of the bourgeois
ideologues about the eternity of the capitalist system, many bourgeois
economists began to see as one of their main tasks the concealment from the
working people of the capitalist countries, by means of slanders against the
Soviet Union, distorting the essential nature of the Soviet system, of the truth
about the world-historic achievements of the land of socialism. Modern
bourgeois political economy is an ideological weapon of the finance oligarchy,
and most of its representatives function openly and without concealment as
defenders of imperialist reaction and aggression.
In their explanation of such categories of capitalism as value, price,
wages, profit and rent, modern bourgeois economists usually adopt the
standpoint of the subjective-psychological trend, one of the varieties of which
is the Austrian school described above, and rehash in various ways the old
vulgar theory of the three factors of production. The British economist ALFRED
MARSHALL (1842-1924) tried eclectically to reconcile three different vulgar
theories of value: supply and demand, marginal utility and costs of production.
The American economist JOHN BATES CLARK (1847-1938) propagating the
false notion of the harmony of interests between the different classes of
bourgeois society, put forward the theory of marginal productivity, which was
in fact merely a peculiar attempt to combine the old vulgar theory of
productivity of capital with the vulgar theory of marginal utility propounded
by the Austrian school. Profit, according to Clark, is a sort of recompense for
the work of the employer. The working people create only a small part of the
worlds wealth and receive it back in full.
Unlike the bourgeois economists of the epoch of pre-monopoly
capitalism, who extolled freedom of competition as the basic condition for
societys development, modern bourgeois economists usually stress the need
for all-round interference by the State in economic life. They extol the
imperialist State as a force which stands above classes and is capable of
subjecting the economy of the capitalist countries to the principle of planning.
In reality, however, the intervention of the bourgeois State in economic life has
nothing in common with the planning of the national economy, and intensifies
the anarchy of production still further. The apologists of monopoly hypocritically
describe as organised capitalism the subordination of the imperialist State to
the finance oligarchy and their extensive utilisation of the State machine in
their selfish interests, so as to increase the profits of the monopolies.
The first decades of the twentieth century in Germany saw the spread in
Germany of the so-called social trend, or social organic school of political
economy (A. AMMON, R. STOLZMANN, O. SPANN, etc.). Unlike the Austrian
school with its subjective psychological approach to economic phenomena, the
spokesmen of the social trend dealt with social relations between men, but
they looked on these relations idealistically as legal forms, lacking any material
content. The economists of the social trend declared that social life is governed
by legal and ethical norms. They covered up their zealous service to the
capitalist monopolies with demagogic arguments about the common welfare
and the need to subordinate the part, i.e., the working masses, to the
whole, i.e., the imperialist State. They praised the activity of the capitalists,
declaring it to be service to society. The reactionary fabrications of this school
furnished an ideological weapon to fascism in Germany and in other bourgeois
countries.
German fascism made use of the most reactionary elements of German
vulgar political economy, its extreme chauvinism, its worship of the bourgeois
State, its preaching of conquest of other peoples lands together with class
peace within Germany. The German fascists, who were the bitterest foes of
socialism and of all progressive mankind, resorted in anti-capitalist demagogy
and hypocritically styled themselves National-Socialists. The Italian and
German fascists preached the reactionary theory of the corporative State,
according to which capitalism, classes and class contradictions had been
abolished in the fascist countries. The fascist economists justified the robber
conduct of Hitlerite Germany in seizing the lands of other peoples by means of
the so-called race theory and the theory of living-space. According to these
theories the Germans are a higher race and all the other nations are
inferior; the master race has the right to seize by force the lands of the
other, inferior races and to extend its rule throughout the world. The
experience of history has shown graphically the foolishness and impracticability
of Hitlers crazy plans to conquer world power.
In the period of the general crisis of capitalism, when the market
problem has assumed unprecedented acuteness, economic crises have become
both more frequent and more profound, and permanent mass unemployment is
a regular feature of life, sundry theories have appeared which suggest that it is
possible to secure full employment and to eliminate anarchy of production
and crises while preserving the capitalist system. The theory of the British
economist J.M. KEYNES (1883- 1946) which he set forth in his book A General
Theory of Employment, Interest and Money (1936) became widespread among
bourgeois economists.
Concealing the true causes of permanent mass unemployment and crises
under capitalism, Keynes tries to show that these flaws of bourgeois society
arise not from the nature of capitalism but from the psychology of individuals.
According to Keynes, unemployment results from insufficient demand for
articles of personal and productive use. The inadequacy of consumer demand is
caused by the inherent tendency which people have to save part of their
income, and the inadequacy of demand for articles of productive use is due to
the capitalists loss of interest in investing their capital in the various branches
of the economy because of the general fall in the profitability of capital. In
order to increase employment, Keynes declares, it is necessary to increase the
investment of capital, and to this end the State must, on the one hand, ensure
a growth in the profitability of capital by reducing the real wages of the
workers through inflation and reduction of the bank rate, and, on the other
hand, carry out large-scale capital investment at public expense. The extension
of consumer demand, according to Keynes, may come from a further growth in
the parasitic consumption and extravagance of the ruling classes and an
increase in expenditure for war purposes and other unproductive outlays by the
State.
Keynes theory is unsound. The inadequacy of consumer demand is due
not to any mythical inclination of people to save but to the impoverishment of
the working people. The measures proposed by Keynes allegedly in the
interests of securing full employmentinflation, increase in unproductive,
expenditure on preparing and carrying on warslead in reality to a further
reduction in the standard of living of the working people, to shrinkage of the
market and increase in unemployment. The theory of Keynes in one variety or
another is widely made use of nowadays by bourgeois economists and also by
right-wing Socialists in a number of capitalist countries.
Characteristic of present-day bourgeois political economy in the U.S.A. is
the theory which urges an increase in the State Budget and the public debt as
a means of overcoming capitalisms defects. The American economist A.
HANSEN, whir considers that the possibilities of further development of
capitalism through the operation of elemental economic forces alone have been
substantially narrowed, declares that it is necessary for the State to regulate
capitalist economy through artificially stimulating capital investment by means
of extensive State purchases. According to the theory of Hansen and a number
of other American bourgeois economists, State expenditure should serve as the
regulator, of employment: during crises and depressions the Government
must increase its expenditure and during inflation it must reduce it. Starting
from this idea they call for an extension of the practice of State orders, the
establishment of enterprises at State expense, the purchase of strategic
material on a large scale, the expansion of the army and of the Government
apparatus. In fact, all these forms of State expenditure, connected with the
militarising of the economy and the arms drive, play a very great role in
ensuring maximum profits to the monopolies.
After the second world war American bourgeois economists made
extensive propaganda in favour of militarising the economy as a way of
preserving it from economic crises of overproduction. According to these
economists, a large demand for war purposes will guarantee an unbroken
growth in production. This apologetic theory is refuted by reality, for the
militarising of the economy can only hold back for a short time the onset of an
overproduction crises, and in the last analysis inevitably aggravates the
contradiction between the growth of the productive potentialities and the
narrowing of the effective demand of the population, which leads to economic
crises.
Certain bourgeois economists in the U.S.A. and Britain call for free play
of economic forces, by which in fact they understand the unrestricted freedom
of the monopolies to exploit the workers and fleece the consumers. These
economists hypocritically declare the activities of the trade unions in defence of
the workers to be a violation of economic freedom, and eulogize the
reactionary, anti-labour legislation of the imperialist States. Both the
champions of regulation of the economy by the bourgeois State and the
upholders of the free play of economic forces express the interests of the
finance oligarchy, which tries to assure itself of maximum profits through
further intensifying exploitation of the working masses inside the country and
through imperialist aggression in the international arena.
Some bourgeois economists try to justify the aggressive policy of seizure
of other peoples lands by the imperialist Powers, and their enslavement and
plundering of other peoples, by anti-scientific fabrications about the
inequality of the various races and nations about the civilising mission of the
higher races and nations in relation to the lower ones, etc. Especially
zealous in this direction are the most reactionary American economists who,
following in the footsteps of the German fascists, are propagating the man-
hating idea of the superiority of the English-speaking nations over all other
peoples, and trying to justify by all possible means the crazy plans for
establishing domination of the world by the U.S.A. In this connection they
diligently extol the American way of life, putting forward, in fact, the theory,
long since refuted, of American exceptionalism, which was current in the
1920s and asserted that American capitalism differed in principle from
European, that it was free from such evils as class contradiction and class
struggle, the domination of monopoly, colonialism, and so on. American
capitalism was defined as peoples, democratic, labour capitalism. In
reality, nowhere is the domination of capital over labour, the despotism of
monopoly in all fields of economic and political life and the subordination of the
State apparatus to the financial oligarchy so clearly apparent as in the U.S.A.
Many apologists, of American imperialism express themselves against the
independence of peoples and national sovereignty and declare that the
existence of national States is the fundamental cause of all the social calamities
of present-day bourgeois societymilitarism, war, unemployment, poverty, etc.
To the principle of national sovereignty they oppose the cosmopolitan idea of a
world State in which the leading role would be played, of course, by the
U.S.A. The preaching of cosmopolitanism has as its task to disarm the peoples
ideologically, to break their will to resist the encroachments of American
imperialism.
Many bourgeois economists in the U.S.A., are putting out direct
propaganda for another world war. They depict war as a natural and eternal
feature of social life, and they declare that peaceful co-existence between the
countries of the capitalist camp and those of the socialist camp is impossible.
 For the purpose of the preparation of another world war there is
widespread propaganda in bourgeois writings for the long-since discredited
theory of Malthus. Characteristic of modern Malthusianism is the combination
of Malthuss reactionary ideas with the race theory. Malthusian economists
claim that the world is overpopulated owing to the excessive multiplication of
man, which is also the basic cause of food-shortage and of all other woes
suffered by the working masses. They demand a sharp reduction in the
numbers of the population, especially in the colonial and dependent countries,
the people of which are carrying on a fight for liberation against imperialism.
The Malthusians of today call for the waging of devastating wars and the use of
atomic bombs and other means of mass annihilation.
Life shows the utter untenability of the theoretical constructions of
present-day bourgeois political economy, its menial role in relation to monopoly
capital, its inability to give a scientific analysis and positive solution of the
economic problems of the present epoch.
The petty-bourgeois criticism of imperialism. In contrast to Sismondi,
who regarded the system of free competition as the primary source of all the
evils of capitalism, a considerable section of the petty-bourgeois economists of
the imperialist epoch extol the capitalism of the epoch of free competition,
depicting it as the best of economic systems. They turn the edge of their
criticism not against capitalism in general but only against the unrestricted rule
of the, capitalist monopolies, seeing in their arbitrary power the fundamental
threat to economic freedom, individual initiative, etc.
The works of the petty-bourgeois critics of capitalism contain a wealth of
factual information exposing the predatory behaviour of the monopolies. But
the petty-bourgeois economists criticise the monopolies from a reactionary-
utopian stand-point, calling for a return to the capitalism of free competition.
They deny the need to go forward to socialism, without which the elimination
of the rule of the monopolies is unthinkable. The petty-bourgeois criticism of
imperialism sows illusions about the possibility of doing away with the abuses
of monopoly and strengthening the position of small and medium concerns by
means of anti-trust legislation and all manner of measures to encourage
small businesses and combat the speculative machinations of the financial
sharks, while preserving capitalism. The petty-bourgeois economists sow
illusions by affirming that, in capitalist conditions, it is possible to save the
small commodity producersthe peasants and handicraftsmenfrom ruin, and
fundamentally to improve, the position of the workers through developing
consumer, agricultural and artisan co-operatives.
In present-day circumstances many representatives of petty-bourgeois
political economy function as exponents of the discontent among the petty-
bourgeois strata of the population against the arbitrary power of the
monopolies, the despotism of the State, the unbearable burden of taxes and
the growing danger of war. In the Western European countries, and also
especially, in the underdeveloped countries, the representatives of this trend
take an active part in the democratic movement against encroachment by
Americas imperialism upon the national sovereignty of other countries, against
the arms drive and against the policy of preparing another world war.
 The Economic Theories of the Opportunists of the Second
International and the Right-wing Socialists of Today

The countless attempts made by bourgeois science to destroy Marxism

in no way shook its position. Then the struggle against Marxism began to be
wage under the flag of effecting the improvement or interpretation of
Marxs theory. The dialectics of history were such that the theoretical victory
of Marxism obliged its enemies to disguise. themselves as Marxists. (Lenin,
The Historical Fate of Marxs Teaching, Selected Works, 1950 edition, vol. I,
Pt. I, p. 84.) The revisionists tried to adapt proletarian political economy to the
interests of the bourgeoisie..
In the 1890s, revisionism came on the scene, with the German Social-
Democrat E. BERNSTEIN as its chief spokesman. The revisionists took the field
against Marx and Engels teaching on the inevitability of the revolutionary
downfall of capitalism and the setting-up of the dictatorship of the proletariat.
They subjected all sections of Marxs revolutionary economic teaching to
thorough revision. The revisionists proposed to Marxs labour theory of value
with the theory of marginal utility, and, in essentials, to replace it by the latter.
Marxs teaching on surplus-value they interpreted in the sense of moral
condemnation of capitalist exploitation. Sheltering behind alleged new data
on the development of capitalism, the revisionists described as out of date
Marxs teaching on the victory of large-scale production over small, on the
impoverishment of the proletariat in capitalist society, on the irreconcilability
and increasing acuteness of class contradictions, on the inevitability of
economic crises of overproduction under capitalism. They called on the workers
to refrain from revolutionary struggle to overthrow the capitalist system and to
limit their struggle to current economic interests. In Russia the views of
revisionism were upheld by the so-called legal Marxists, who were in fact
ideologists of the bourgeoisie (P. STRUVE, M. TUGAN-BARANOVSKY, etc.) and
by the spokesmen of the opportunist group of Economists and by the
Mensheviks.
A more subtle form of distortion of Marxism was undertaken by the
opportunists of the Second International K. KAUTSKY (1854-1938), R.
HILFERDING (1877-1941) and others. At the beginning of their activity they
were Marxists and contributed to the spread of Marxs teachings. In this
connection should be mentioned such works of K. Kautskys as The Economic
Doctrine of Karl Marx, The Agrarian Question and others, and also Hilferdings
work Finance Capital (1910), which, in spite of the, mistakes which it
contained, played a definite positive role in the scientific study of the. modern
phase of capitalist development. Later, however, Kautsky and Hilferding passed
over in effect to the position of opponents pf revolutionary Marxism, though
continuing for the time being to appear in the guise of orthodox pupils of
Marx and Engels. Objecting in wordsand that inconsistentlyto certain theses
of the revisionists, these opportunists nevertheless emasculated Marxism of its
revolutionary essence and tried to transform it into a dead dogma. They threw
out the doctrine of the dictatorship of the proletariat, which is the heart of
Marxism, denied the absolute impoverishment of the working class, and
affirmed that crises were disappearing under capitalism.
Slurring over the profound contradictions of monopoly capitalism in every
way, K. Kautsky treated imperialism as merely a particular kind of policy, viz.,
as the striving of highly-developed industrial countries to subject agrarian
countries to themselves. This theory sowed the illusion that a predatory policy
did not result from the essential nature of monopoly capitalism. During the first
world war Kautsky put forward the anti-Marxist theory of ultra-imperialism
(super-imperialism), asserting that it might be possible under imperialism by
agreement between the capitalists of the different countries to create an
organised world economy and thereby eliminate anarchy of production and
war. Characteristic of this reactionary theory was the separation of economics
from politics and the ignoring of the law of uneven development of the
capitalist countries in the epoch of imperialism. The theory of ultra-
imperialism whitewashed imperialism and disarmed the working class to the
advantage of the bourgeoisie, by giving rise to illusions about peaceful and
crisisless development of capitalism. These same purposes were served by the
vulgar theory of the productive forces which Kautsky also propagated;
according to this theory socialism is a mechanical outcome of the development
of the productive forces of society, without class struggle or revolution. After
the great October Socialist Revolution in Russia Kautsky took the road of open
struggle against the first dictatorship of the proletariat to be established in the
world, and called for intervention against the Soviet Republic.
R. Hilferding, in his work Finance Capital, slurred over the decisive role
played by monopoly in modern capitalism and the sharpening of its
contradictions, and ignored very important features of imperialismthe
parasitism and decay of capitalism, the partition of the world and the struggle
to re-divide it. During the years of temporary and partial stabilisation of
capitalism after the first world war, Hilferding followed the bourgeois
economists in affirming that the era of organised capitalism had arrived,
when thanks to the activity of the monopolies competition, anarchy of
production and crises were disappearing and planned, conscious organisation
had begun to prevail. From this the reactionary leaders of the Social-
Democratic parties drew the conclusion that the trusts and cartels were
peacefully growing into planned socialist economy; all that remained for the
working class to do was to help the trust magnates and bankers to adjust their
economy, and then present-day capitalism would gradually, without any conflict
or revolution, grow peacefully into socialism.
Thus the whitewashing of imperialism by Kautsky, Hilferding and other
reformist theoreticians of Social-Democracy was inseparably linked with their
preaching of a peaceful growth of capitalism into socialism, aimed at
deflecting the working class from the tasks of the revolutionary struggle for
socialism, at subordinating the workers movement to the interests of the
imperialist bourgeoisie. This purpose was served, especially, by the spreading
by certain right-wing socialist leaders in, the between the two world wars
period of the apologetic theory of economic democracy. According to this
theory the workers who as representatives of trade unions appear before
factory managements and other administrative bodies are. sharing equally in
the management of the economy, and are gradually becoming masters of
industry. By their policy of betraying the interests of the working class the
Social-Democrats of the Second International cleared the way for fascism in
Germany and several other countries.
A variety of the reformist theory of the peaceful growth of capitalism into
socialism is the theory of co-operative socialism, which is based on the
illusion that the spread of forms of co-operation alongside preservation of the
rule of capital will bring about socialism.
In Russia anti-Marxist, Kautskyist views on questions of the theory of
imperialism were spread by the enemies of socialismthe Mensheviks,
Trotskyists, Bukharinists and others. Preaching apologetic theories of pure
imperialism, organised capitalism, etc., they endeavoured to slur over the
sharpening contradictions of monopoly capitalism. Denying the law of uneven
development of capitalism in the epoch of imperialism, they tried to poison the
workers minds with disbelief in the possibility of the victory of socialism in a
single country.
In the period following the second world war the right-wing reformist
leaders of the British Labour Party and the right-wing socialist leaders in
France, Italy, Western Germany, Austria and other countries (L. BLUM, K.
RENNER, etc.) have come forward as defenders of capitalism. The leaders of
the right-wing socialists defend the monopolies, preach class peace between
the workers and the bourgeoisie, and often actively support the reactionary
internal and aggressive foreign policies of imperialism. Endeavouring to
reconcile the working people to imperialism, and to inspire in the working class
faith in the possibility of improving its poverty-stricken lot while preserving the
capital system, the right-wing socialist theoreticians have composed the theory
of democratic socialism, which is a variant of the theory of peaceful growth of
capitalism into socialism.
The theory of democratic socialism affirms that in Britain, France, the
U.S.A. and other capitalist countries exploitation and antagonism of class
interests between the proletariat and the bourgeoisie now no longer exist; the
imperialist State is proclaimed an organisation above classes and every
enterprise belonging to this State a socialist enterprise. The Labour leaders
have claimed the nationalisation of the Bank of England, of the railways and of
certain branches of industry which they carried out when they were in power
after the second world war as triumphs of democratic socialism. In reality,
Labour Party nationalisation was. a bourgeois measure, which in no way
modified the economic nature of the nationalised enterprises as capitalist
enterprises. The actual rulers of Britain continued to be the monopolist
bourgeoisie. The owners of the nationalised enterprises, which had formerly
been unprofitable, received generous compensation and a high, guaranteed
income, while the workers employed in the nationalised branches of industry
were obliged to work still more intensively at a low level of wages. The theory
of democratic socialism serves as a screen concealing the growing oppression
of the working masses by State-monopoly capitalism, which constitutes the
highest degree of domination by the finance oligarchy.
 While preaching class peace in capitalist society, the leaders of the
right-wing socialist parties at the same time actively help the bourgeoisie to
carry out. an offensive on a wide front against the standard of living of the
working masses, and to suppress the labour movement in the metropolitan
countries and the national-liberation movement in the colonies and dependent
countries. In their interpretation and evaluation of all the most important
economic phenomena of the present epoch they usually followed in the
footsteps of the bourgeois economists.
A consistent fight against the theories of the bourgeois economists and
right-wing socialist leaders is carried on by the Communist and Workers
Parties, which are guided in their activity by the theory of Marxism-Leninism.
The ideas of advanced Marxist-Leninist theory are finding ever-wider
acceptance among the progressive sections of the intelligentsia in the
capitalist, colonial and semi-colonial countries, including the economists. The
objective course of social development, the facts of real life, are to an
increasing extent convincing economic scientists in the capitalist countries of
the historical correctness of the theory of Marxism-Leninism. In the works of
these economists, who support the materialist world outlook and are attracted
towards Marxism, there is often to be found valuable material exposing the
contradictions and defects of capitalism today and advocating the idea of
peaceful co-existence between different social systems and economic co-
operation between the peoples. An army of progressive scholars and scientists
and public men of various views and trends is growing and multiplying, taking
an active part in the fight for the national independence of their peoples, for
peace, for the development of economic and cultural links between all
countries regardless of differences in their social systems.

The Development of the Marxist Political Economy of

Capitalism by V.I. Lenin. The Working-out of a Number of
New Propositions in the Political Economy of Capitalism by
J. V. Stalin

The economic teaching of Marx and Engels was given creative

development in the works of V.I. LENIN (1870-1924). Marx, Engels and Lenin
are the creators of genuinely scientific political economy. As a true follower and
continuer of the teachings of Marx and Engels, Lenin carried on an
irreconcilable struggle against both open and concealed enemies of Marxism.
Lenin stood up for the revolutionary teaching of Marx and Engels against the
attacks of bourgeois pseudo-science and against distortions by the revisionists
and opportunists of every brand. Basing himself on the generalisation of new
historical experience of the class struggle of the proletariat, he raised the
teaching of Marxism to a new and higher level.
Lenin entered the political battlefield in the 1890s, when the transition
from pre-monopoly capitalism to imperialism was being completed, when the
centre of the world revolutionary movement was passing to Russiaa country
in which a mighty peoples revolution was coming to maturity.
In his works of the 1890sOn the So-Called Question of Markets
(1893), What the Friends of the People are and how they fight the Social-
Democrats (1894), The Economic Content of Narodism and the Criticism of it in
Mr. Struves Book (1894), A Characterisation of Economic Romanticism (1897)
Lenin waged a consistent fight both against the Narodniks, who declared that
capitalism would not develop in Russia, and against the Legal Marxists, who
extolled capitalism, slurred over its deep-going contradictions and endeavoured
to subordinate the growing movement of the working class to the interests of
the bourgeoisie. The ideological rout of Narodism was completed by Lenins
classical work The Development of Capitalism in Russia (1899), which was the
most considerable work of Marxist writing since Marxs Capital.
In this work, and in his other writings of the 1890s, Lenin thoroughly analysed
the economy of Russia and showed the economic foundations of class
contradictions and class struggle and the prospect before the revolutionary
movement. Generalising the experience of the economic and political
development of Russia and other countries in the last decades of the
nineteenth century, Lenin upheld and developed the propositions of Marxism
about the laws governing the rise and development of the capitalist mode of
production, about its insoluble contradictions and inevitable doom. Refuting the
Narodniks fabrications concerning the artificiality. of Russian capitalism,
Lenin showed the special features of the economy and social system of Russia,
connected with the peculiarities of its historical development, in particular the
combination of methods of capitalist exploitation with numerous survivals of
the yoke of serfdom, which gave a special sharpness to social relations in
Russia.
In his fight against the contemptuous attitude of the Narodniks towards
the proletariat, Lenin showed that the development of capitalism inevitably
leads to a growth in the numbers, degree of organisation and consciousness of
the working class, which is the advance-guard of the entire mass of the
working and exploited people. He gave a comprehensive justification of the
leading role of the proletariat in the revolution.
Lenin ascertained the essence of the differentiation among the peasantry
of Russia in the period since the Reform1, and the close interweaving of
survivals of serf bondage with the oppression of capitalist relations, refuting
the Narodnik conception of the peasantry as a homogeneous mass. He showed
the economic basis for the possibility and necessity of a revolutionary alliance
between the working class and the working and exploited masses of the
peasantry.
Lenin revealed the economic foundation of those peculiarities of the
Russian revolution which made it a revolution of a new typea bourgeois-
democratic revolution led by the proletariat and having the prospect of growing
into a socialist revolution.
The Development of Capitalism in Russia sums up a number of works of
Lenins on the theory of capitalist reproduction. In these works he refuted the
Sismondian statements of the Narodniks about the impossibility of realising
surplus-value in the absence of petty producers and foreign markets, and gave
a comprehensive substantiation of the Marxist thesis that the market for
capitalism is created by the very development of capitalism itself. Lenin
developed further the theses of Marxism about the law of preferential growth
1
i.e., since the abolition of serfdom in 1861Editor, English edition
of the production of means of production under extended reproduction, about
the contradictions of capitalist realisation, about the growth in the organic
composition of capital as a factor in the impoverishment of the proletariat and
about the inevitability under capitalism of periodical crises of overproduction.
Lenins works on the agrarian question made a most valuable
contribution to Marxist political economy in these he scientifically generalised a
great deal of information, on the development of capitalism in the agriculture
of Russia and of a number of other countries (France, Germany, Denmark,
U.S.A., etc.). In his works The Agrarian Question and the Critics of Marx
(1901-7), The Agrarian Programme of Social-Democracy in the First Russian
Revolution of 1905-7 (1907), New Data on the Laws of Development of
Capitalism in Agriculture (I914-15) and others, Lenin investigated deeply and
comprehensively the laws of capitalist development in agriculture, which had
been Indicated by Marx only in general outline.
In his struggle against West European and Russian revisionism which
described agriculture as a branch of the economy to which the laws of the
concentration and centralisation of capital did not apply, Lenin gave a scientific
analysis of the special features of the development of capitalism in the
countryside. He showed the profound contradictoriness of the economic
position of the bulk of the peasantry and the inevitability of their being ruined
in bourgeois society. Lenin upheld and developed the Marxist theory of
differential and absolute ground-rent. Demonstrating the significance of
absolute rent as one of the most important factors hindering the development
of the productive forces in agriculture, Lenin worked out comprehensively the
question of the possibility, conditions and economic consequences of
nationalising the land in the bourgeois-democratic and socialist revolutions. He
exposed the bourgeois economists who propagated the pseudo-scientific law
of diminishing returns from the soil. Combating the opportunist line of the
West European parties of the Second International and of the Russian
Mensheviks, including the Trotskyists, in relation to the peasantry, Lenin
showed the need for the working class to follow a policy calculated to
transform the bulk of the peasantry into an ally of the revolutionary proletariat.
Lenins theory of the agrarian question was a profound economic
justification of the policy of the Communist Party of Russia in the sphere of
relations between the proletariat and the peasantry, and in particular of the
demand for nationalisation of the land, included in its programme. Lenins
works on the agrarian question constitute the theoretical basis for the agrarian
programme and agrarian policy of the Communist Parties in other countries.
 Of very great importance for the development of Marxist theory was the
struggle which Lenin waged in defence of dialectical and historical materialism,
in his notable work Materialism and Empirio-criticism. This book dealt a
crushing blow at the very foundations of the revisionists theoriestheir
idealist philosophy.
Lenin exposed the utter unsoundness of the revisionist criticism of
Marxist political economy. He showed the bankruptcy of revisionism on all the
principal questions of the political economy of capitalism-the theory of value,
the theory of surplus-value, the theory of the concentration of capital, the
theory of crises, etc.
Marx and Engels, living as they did, in the epoch, of pre-monopoly
capitalism, naturally, could not furnish an analysis of imperialism. The great
merit of having carried out the Marxist investigation of, the monopoly stage of
capitalism, is Lenins.
Basing himself on the fundamental propositions of Capital and
generalising the new phenomena in the economy of the capitalist countries,
Lenin, first among Marxists, gave an all round analysis of imperialism as the
last phase of capitalism, as the eve of the social revolution of the proletariat.
This analysis is contained in his classical work Imperialism, the Highest Stage
of Capitalism (1916) and in other works of the first world war period: Socialism
and War, The United States of Europe Slogan, A Caricature of Marxism and
Imperialist Economism, Imperialism and the Split in Socialism, and The
Military Programme of the Proletarian Revolution.
Lenins theory of imperialism starts from the fact that the most profound
basis of imperialism, its economic essence is the domination of monopoly:
that imperialism is monopoly capitalism. Lenin subjected the main! economic
features of imperialism and the concrete forms of monopoly domination to
comprehensive examination. Lenins teaching on imperialism, on the
replacement of free competition by the domination of monopolies which draw
high monopoly profits, and on the sources and methods of ensuring these high
monopoly profits, provided the initial propositions for the. basic economic law
of monopoly capitalism. Describing imperialism as a new and higher stage of
capitalism, he defined the place of imperialism in history and showed that
imperialism is capitalism in its monopolistic, parasitic or decaying ,and
moribund, stage. Lenins theory of imperialism reveals the contradictions of
capitalism in the monopoly stage of its developmentthe contradictions
between labour and capital, between the metropolitan countries and the
colonies, and between the imperialist countries. It explains the profound
causes which render inevitable imperialist wars for a new repartition of the
world. The aggravation and deepening of all these contradictions reaches
extreme limits, beyond which the revolution begins. Lenin demonstrated the
just character of the struggle for liberation waged by the peoples against
imperialist oppression and enslavement.
Lenin worked out the question of State-monopoly capitalism, of the
subjection of the bourgeois State machine to the monopolies. He showed that
State-monopoly capitalism means the highest form of capitalist socialisation of
production and the material preparation for socialism, on the one hand, and,
on the other, means exploitation of the working class and all the working
masses in every possible way.
 Lenin discovered the law of uneven economic and political development
of capitalist countries in the imperialist period. Taking this law as his starting-
point, he made the great scientific discovery that it was possible to break the
chain of world imperialism at its weakest link, the deduction that the victory of
socialism could occur first of all in a few countries or even in a single country,
and that a simultaneous victory of socialism in all countries was not possible.
Lenin proved the tremendous role of the peasantry as the proletariats ally in
the revolution. Lenin worked out the theory of the national and colonial
question and indicated the lines along which it should be solved. He showed
the possibility and necessity of linking up the proletarian movement in the
developed countries with the national liberation movement in the colonies in a
united front of struggle against the common enemyimperialism. Lenins
theory of imperialism showed the necessity of socialist revolution and of the
dictatorship of the working class in the conditions of the new epoch of history,
the epoch of direct and decisive battle by the proletariat for socialism. Thus,
Lenin created a new, finished theory of socialist revolution.
Lenin worked out the principles of the doctrine of the general crisis of
capitalismthe historical period of the downfall of the capitalist system and the
victory of the new, higher, socialist system. Already in the period of the first
world war he drew the conclusion that the epoch of comparatively, peaceful
development of capitalism was over, and that the imperialist war, which was a
tremendous historical crisis, was opening the era of socialist revolution. The
war created such a boundless crisis, said Lenin on the eve, of the great
October Socialist Revolution, that mankind found itself confronted with the
choice: either to perish or to entrust its fate to its most revolutionary class, in
order to bring about as rapid as possible a transition to a higher mode of
productionsocialism. From the fact established by Lenin of the uneven
ripening of socialist revolution in the different links of the world capitalist
system, it follows that the downfall of capitalism and, the victory of socialism
take place by way of the falling-away from the capitalist system of separate
countries, in which victory has been won by the working class, advancing to
power in close and unbreakable alliance with the basic working masses of the
peasantry, and gathering around itself the overwhelming majority of the
people. Lenin showed that peaceful co-existence of the two systems, capitalist
and socialist, over a long period of history was both possible and necessary.
Lenin worked out the theory of imperialism and of the general crisis of
capitalism in irreconcilable struggle against the bourgeois economists and
opportunists of the Second International. He exposed the complete theoretical
unsoundness and political harmfulness of Kautskys anti-Marxist theory of
ultra-imperialism, and of the variants of this theory put forward by Trotsky
and Bukharin. In his struggle against Bukharins distortions of Marxism, Lenin
stressed more than once that pure imperialism, without a foundation of
capitalism, never existed, exists nowhere, and cannot exist. Characteristic of
imperialism is precisely the union of monopoly with exchange, the market,
competition. Rising above the old capitalism like a sort of superstructure upon
it and direct prolongation of it, imperialism accentuates still further all the
contradictions of bourgeois society. Lenin showed the profound connection
between opportunism and imperialism and exposed the political role of the
opportunists as agents of the bourgeoisie in the workers movement. Lenin laid
bare the roots of the opportunist trends in the labour movement, showing that
these trends arise on the basis of the bribing and corruption by the bourgeoisie
of the uppermost strata of the working class. Lenin dealt a crushing blow to the
apologetic treatment of State-monopoly capitalism by the opportunists, who
tried to present it as socialism. Lenins woks directed against opportunism are
very important for the revolutionary movement, since without exposing the
ideological and political content of opportunism and its treacherous role in the
workers movement there can be no real struggle against capitalism.
Problems of Marxist-Leninist political economy were further developed,
and made more concrete, in the resolutions and documents of the Communist
Party of the Soviet Union and in the works of J.V. STALIN (1879-1953) and
other companions-in-arms and pupils of Lenins.
Basing himself on the works of Marx, Engels and Lenin, Stalin put
forward and developed a number of new propositions in the field of economic
science, founded on generalisations of new experience of historical
development, new practice in the struggle of the working class and its
Communist Party. At the same time Stalins works consistently defended
Marxist political economy against the enemies of revolutionary Marxism and
popularised its basic problems and propositions.
Exposing the falsity of the claims made by bourgeois economists and by
the reformists that the contradictions of capitalism become mitigated in the
course of its historical development, Stalin showed the inevitability of a further
aggravation and accentuation of these contradictions, testifying to the
inevitable doom of capitalism. A number of important propositions in the field
of the agrarian question were developed in Stalins works. In conflict with
revisionism, Stalin, basing himself on new arguments, showed the utter
unsoundness of the theory of the stability of small peasant economy. Only
abolition of the system of capitalist slavery can save the peasantry from ruin
and beggary. The peasant question is a question of transforming the exploited
majority of the peasantry from a reserve of the bourgeoisie into a direct
reserve of the revolution, into an ally of the working class, fighting to abolish
the capitalist system. In his work Marxism and the National Question (1913)
and in other works Stalin further elaborated the national question. He showed
the significance of the economic conditions of social life in the formation of
nations and national States. Community of economic life is one of the
distinguishing marks of a nation. The process of the abolition of feudalism and
the development of capitalism is at the same time a process of forming people
into nations. Stalin elucidated the importance of the national market in the
process of creating national States in Western Europe, and described the
special features of the historical process of formation of States in the East.
The Communist Party of the Soviet Union, led by its Central Committee
headed by J.V. Stalin, upheld Marxist-Leninist theory as a whole, and Marxist-
Leninist economic teachings in particular, against the attacks of the enemies of
Leninismthe Trotskyists, Bukharinists and bourgeois nationalists. Of particular
importance for the destinies of socialism in the U.S.S.R. and throughout the
world was their defence and further development of Lenins teaching on the
possibility of the victory of socialism in one country, Lenins theory of socialist
revolution.
In a number of Stalins works Foundations of Leninism, Problems of
Leninism, Economic Problems of Socialism in the U.S.S.R., reports to
congresses and conferences of the C.P.S.U., Lenins propositions on the
economic and political essence of imperialism and of the general crisis of
capitalism, and on tee laws of development of monopoly capitalism, were
further developed. Basing himself on Lenins classical statements concerning
the economic essence of imperialism, which consists in the domination of
monopoly and high monopoly profits, Stalin formulated the basic economic law
of modern capitalism. He gave a detailed analysis of the general crisis of
capitalism and of its two stages: the first beginning in the period of the first
world war, and the second which developed in the period of the second world
war, especially after the breaking away from the capitalist system of the
Peoples Democracies of Europe and Asia.
Exposing the hirelings of the bourgeoisie who sing the praises of the
capitalist system of economy, he gave a comprehensive description of the
general crisis of capitalism, which involves both economics and politics. The
most vivid expression of the general crisis of capitalism is the world-historic
victory of the great October Socialist Revolution in the U.S.S.R. and the
splitting of the world into two systemscapitalist and socialist. A component
part of the general crisis of capitalism is the crisis of the colonial system of
imperialism.
In Stalins works there are elucidated the nature and importance of such
features of the general crisis of capitalism as the extreme aggravation of the
problem of markets, the chronic under-capacity working of enterprises, and
constant mass unemployment. Giving an analysis of the changes in the
character of the capitalist cycle and of the economic crises in the present
epoch, Stalin showed the fruitlessness of attempts by the bourgeois State to
cope with crises and the unsoundness of claims that planned management of
the economy is possible under capitalism. In Stalins works are exposed the
deeply reactionary and aggressive nature of fascism and the treacherous role
of the right-wing socialists of the present day.
Marxist-Leninist political economy serves as a guide to action for the
Communist and Workers Parties of all countries. It illuminates the working
peoples path to liberation from the yoke of capital.
 Part Three

THE SOCIALIST MODE OF PRODUCTION

A. THE TRANSITIONAL PERIOD FROM

CAPITALISM TO SOCIALISM
 CHAPTER XXIII

MAIN FEATURES OF THE

TRANSITIONAL PERIOD FROM CAPITALISM TO
SOCIALISM
The Proletarian Revolution and the Necessity for a
Transitional Period from Capitalism to Socialism

The whole course of development of the capitalist mode of production

and of the class struggle in bourgeois society inevitably leads to the
revolutionary replacement of capitalism by socialism. Capitalism gives rise to
large-scale machine industry which is the material prerequisite for the
transition to socialism. In the shape of the proletariat, the development of
capitalism prepares the social force which carries out this transition. As has
been shown above, in the epoch of imperialism the conflict between the
growing productive forces and bourgeois relations of production, which have
become fetters on these productive forces, assumes unparalleled acuteness.
The law that the relations of production must necessarily correspond to the
character of the productive forces requires the abolition of the old bourgeois
production-relations and the creation of new socialist productive relations.
Hence, there arises the objective necessity of the proletarian socialist
revolution.
There can be no peaceful growing of capitalism into socialism, as
preached by the opportunists, because of the opposite natures of the very
foundations of bourgeois and socialist society and of the antagonistic interests
of labour and capital. The transition from capitalism to socialism is only
possible by way of proletarian revolution and the dictatorship of the proletariat.
The proletariat, by virtue of its economic position, is the only class capable of
uniting the whole of the working people around itself, for the overthrow of
capitalism and the victory of socialism.
Proletarian revolution is fundamentally different from all preceding
revolutions. In the transition from slavery to feudalism and from feudalism to
capitalism, one form of private property was replaced by another, and the
power of one group of exploiters by that of another. Because all exploiting
societies had foundations of a similar type-private ownership of the means of
productionthe new economic structure matured gradually in the womb of the
old form of production. Thus, in the transition from feudalism to capitalism,
new bourgeois relations of production gradually developed in the womb of the
old system, more or less ready-made forms of the capitalist order grew up. The
task of the bourgeois revolution consists of the seizure of power by the
bourgeoisie in order to bring this power into accord with the existing capitalist
economy and to sweep away the fetters of the old, feudal society which
hamper the growth of capitalism. With the solution of this task, the bourgeois
revolution is usually accomplished.
Proletarian revolution aims at replacing private ownership of the means
of production by social ownership, and abolishing every kind of exploitation of
man by man. It does not find any ready-made forms of socialist economy. A
socialist form of society, based on social ownership of the means of production,
cannot grow up in the womb of a bourgeois society based on private
ownership. Having established the power of the proletariat, the proletarian
revolution has the task of building a new socialist economy. The conquest of
power by the working class is only the beginning of the proletarian revolution,
and power is used as a lever for the reconstruction of the old economy and the
organisation of the new.
Consequently, the replacement of capitalism by socialism requires in
each country a special transitional period which occupies a whole historical
epoch, in the course of which the building of socialist economy and radical
reconstruction of all social relations takes place.

Between capitalist and communist society lies the period of the

revolutionary transformation of the one into the other. There corresponds
to this also a political transition period, in which the State can be nothing
but the revolutionary dictatorship of the proletariat. (Marx, Critique of
the Gotha Programme, Marx and Engels, Selected Works, 1951 vol. II,
p. 30.)

The transitional period from capitalism to socialism begins with the

establishment of proletarian power and is completed with the construction of
socialism, the first phase of communist society. During the transitional period
the old capitalist basis is abolished a new socialist basis is created and the
development of productive forces necessary for the victory of socialism is
assured. During this period the proletariat must temper itself as the force
capable of administering the country, of building socialist society and re-
educating the petty bourgeois masses in the spirit of socialism.
Basing himself on the principles of Marx and Engels, Lenin worked out
the theory of the transitional period from capitalism to socialism and the
dictatorship of the proletariat, which equipped the working class, and all
working people with a scientific approach to the building of socialism.
The proletarian revolution was first victorious in Russia. The development
of capitalism in Russia was sufficient for the victory of the proletarian
revolution. At the same time Russia was the focal point for all the
contradictions of imperialism. This greatly intensified the revolutionary activity
of the proletariat and the gathering around it of the peasant masses. In
October 1917, under the leadership of the Communist Party which was
equipped with Lenins theory of the socialist revolution the Russian proletariat,
in alliance with the poor peasantry, overthrew the power of the capitalists and
landlords and established its own dictatorship. The great October Socialist
Revolution, which for the first time in the history of mankind had opened the
way to socialism, gave an, example of the essential features of the proletarian
revolution in any country. In this connection, it must be borne in mind that the
socialist revolution in each country seceding from the imperialist system
necessarily has its own peculiarities, arising from the particular historical
conditions of development of each country and the prevailing international
situation.
 Lenin discovered and scientifically proved the possibility, in certain
historical conditions, of a non-capitalist path of development in socially and
economically backward countries. Having thrown off the yoke. of imperialism,
these countries are able, with the help of advanced countries where the
proletarian revolution has been victorious, to avoid the prolonged and
agonising process of capitalist development and, by-passing, the capitalist
stage, are able gradually to begin building socialism. Thus, an example of the
non-capitalist path of development is the Mongolian Peoples Republic, where
feudal relations earlier prevailed. Thanks to the assistance of the Soviet Union,
the Mongolian Peoples Republic was able to develop along the path to
socialism, without passing through capitalism.

The Dictatorship of the Proletariat as the Instrument for

Building a Socialist Economy

Because the proletarian revolution has the task of creating the socialist
system of economy, based on social ownership of the means of production, and
of ending every kind of exploitation, it cannot avoid breaking up the old State
machine, which suppressed the working people, and forming a new State
capable of ensuring the establishment of the new economy. The proletarian
revolution gives birth to a State of a new typethe dictatorship of the
proletariat. The economic and political emancipation of the working people and
the transition from the capitalist to the socialist mode of production is
impossible without the dictatorship of the proletariat as its political
superstructure. The dictatorship of the proletariat is the State leadership of
society by the working class.
The dictatorship of the proletariat is a real democracy which reflects the
deepest interests of the working people. With the dictatorship of the
proletariat, the working people become, for the first time in history, the
masters of their country. In all its previous forms the State has held down the
exploited majority in the interest of an exploiting minority. The dictatorship of
the proletariat holds down the exploiting minority in the interests of the
working-class majority. Whereas the bourgeois revolution, in consolidating the
new capitalist form of exploitation, cannot rally the working people and
exploited masses around the bourgeoisie for any length of time, the proletarian
revolution, in abolishing every kind of exploitation, can and must bind these
masses to the proletariat in a permanent alliance. The alliance of the working
class and the peasantry under the leadership of the working class is directed
against the exploiting classes, and is the supreme principle of the dictatorship
of the proletariat. The consolidation of the power of the proletariat and the
construction of a socialist economy are impossible without this alliance.
The dictatorship of the proletariat is a continuation of the class struggle
of the proletariat in new conditions and in new forms, against internal
exploiters and against the aggressive forces of capitalist countries. The
dictatorship of the proletariat is a persistent strugglebloody and bloodless,
violent and peaceful, military and economic, educational and administrative-
against the forces and traditions of the old society. (Lenin, Left-Wing
Communism, an Infantile Disorder, Selected Works, 1950, English edition, vol.
II, Pt. 2, p. 367.)
The dictatorship of the proletariat has three basic features,
corresponding to the problems involved in building socialism. It means the use
of the power of the proletariat, in the first place to crush the exploiters, defend
the country and consolidate its links with the proletarians of other countries;
secondly, to detach once and for all the working people and exploited masses
from the bourgeoisie, and to consolidate the alliance of the proletariat with
these masses so that they can be drawn in to the work of building socialism;
thirdly, to build the new socialist society.
As a political superstructure, the dictatorship of the proletariat is born of
societys fully-matured economic need of a transition from capitalism to
socialism. But having come into being, it becomes itself a most powerful force,
the instrument for the building of socialism. It ensures the elimination of the
old capitalist basis, actively assists the socialist basis to arise and develop the
victory of socialist forms of economy over capitalist forms.
Socialist forms of economy cannot emerge and develop spontaneously, of
their own accord. They arise and develop as a result of the planned activity of
the proletarian State and the creative activity of the working masses.
The proletarian State can successfully create the new basis only in so far
as it relies on the objective economic law that the relations of production must
necessarily correspond to the character of the productive forces, and to the
new economic laws which emerge from the new economic conditions.
Compared with capitalism, the dictatorship of the proletariat secures the
creation of a higher form of social organisation of labour. This is the chief
source of strength of the socialist structure and of its victory over capitalism.
The forms of the proletarian State can vary. The transition from
capitalism to communism certainly cannot but yield a tremendous abundance
and variety of political forms, but the essence will inevitably be the same: the
dictatorship of the proletariat. (Lenin, The State and Revolution, Selected
Works, 1950, English edition, vol. II, Pt. I, p. 234.)
This basic tenet of Marxism-Leninism has been wholly confirmed both by
the historical experience of the U.S.S.R; where the form of the dictatorship of
the proletariat discovered by Lenin-Soviet power-has established itself, and
also by the subsequent historical experience of those countries where the
dictatorship of the proletariat takes the form of peoples democracy.
Guidance of the whole process of planned construction of a socialist
economy, in countries of the dictatorship of the proletariat, belongs to the
Communist (workers) parties. These parties, equipped with the theory of
Marxism-Leninism and a knowledge of the laws of economic development of
society, organise and guide the masses of the people to the solution of the
problems of building socialism.

Socialist Nationalisation

The development of capitalism prepared the essential pre-requisites for

the socialisation of large-scale machine industry, mechanised transport, the
banks, etc. The proletarian State, at the very outset of the transitional period,
carries out the nationalisation of large-scale capitalist production.
Socialist nationalisation is the revolutionary alienation of the property of
the exploiting classes by the proletariat and its conversion into State, socialist
propertythe property of the whole people. Socialist nationalisation leads to
the elimination of the basic contradiction of capitalismthe contradiction
between the social character of production and the private capitalist form of
appropriation. As a result of socialist nationalisation the relations of production
in industry are brought into accord with the nature of the productive forces,
and this provides scope for their development.
Socialist nationalisation in the first place does away with the capitalist
ownership of the chief means of production and thereby abolishes the
economic domination of the bourgeoisie; in the second place it provides the
proletarian dictatorship with an economic base, by transferring the
commanding heights of the national economy, that is the key branches of the
economy, to the working people. Social ownership of the means of production,
as the basis of socialist production-relations, is established in these branches.
The nationalisation of large-scale industry, as the leading branch of the
national economy, is of decisive importance for socialist construction. At the
same time the banks, railways, merchant marine and communications, large-
scale enterprises of internal trade and all foreign trade are nationalised. With
the nationalisation of the banks the bourgeoisie lose one of their main
instruments of economic domination, and the proletarian State acquires a
centralised and extensive economic apparatus which, after its revolutionary
refashioning, is utilised for the building of socialism. The nationalisation of
foreign trade is essential to a country building socialism in order to secure its
economic independence of the capitalist world.
Because of the urgent need to abolish the survivals of serfdom in the
anachronistic system of large landowning, the proletarian State immediately
confiscates the estates of the big landowners together with their cattle and
implements. The bulk of the confiscated land is transferred to the working
peasantry, while a small part is organised into large-scale State agricultural
enterprises.
Nationalisation of the land, that is, the abolition of private ownership of
land, and its conversion into the property of the proletarian State, is one of the
most important measures of the socialist revolution. The question of the
carrying out of the nationalisation of all the land is decided by the proletarian
authority in accordance with the concrete conditions of each country. In Russia,
where peasant traditions of private ownership of land were weaker than in the
West, the Soviet Government in accordance with the demands of the peasant
masses nationalised the whole of the land at the outset of the revolution.
Hence absolute rent disappeared. The Soviet peasantry for the first time in
history acquired the land for use without payment, from the hands of the
proletarian revolution. In those countries where small peasant private
ownership has existed for a long period, and where the peasantry accordingly
has a stronger tradition of private ownership, the working class does not, on
taking power, nationalise the whole of the land at the beginning of the
revolution. In these countries only a part of the land, which bas been
confiscated from the big landowners, is nationalised and formed into a State
fund. The bulk of the confiscated land becomes the private property of the
peasantry. The question of nationalising the whole of the land is settled in
practice in the course of the socialist reconstruction of agriculture.

In the first months of the great October Socialist Revolution, after the
bourgeois State apparatus had been broken, the means of production and
other wealth were nationalised, and taken from the landowners and big
capitalists without compensation.

The Decree on Land was issued on October 26 (November 8), 1917. The lands
belonging to the landowners, bourgeoisie, imperial family, churches and monasteries, were
confiscated, alienated without compensation. The right to private ownership of land was
abolished for ever. The whole of the land together with its minerals, woods and waters became
State property (the possession of the whole people). The purchase and sale of land was
forbidden. The peasantry received free use of more than 400 million acres of new lands in
addition to the land it disposed of before the revolution. It was freed from rent payments to the
landowners and also from expenditures on land purchase, amounting in all to more than 700
million gold roubles (about 75 millions) annually. The nationalisation of the land was the basis
for the abolition of the class of landowners. It meant the complete eradication of the remnants
of serfdom. Thus, in passing, the socialist revolution finally completed the tasks of the
bourgeois-democratic revolution. The nationalisation of the land did not yet in itself create
socialist relations of production in the countryside since, although the land become national
property, it continued to be privately used. It was, however, of great importance for the
building of socialism. Nationalisation of the land strengthened the economic basis of the
dictatorship of the proletariat and improved the economic condition of the working peasantry. It
paved the way for the movement of the peasantry later on along the path of socialist
development.
By way of a transitional measure towards general nationalisation of capitalist concerns,
and in order to obtain a degree of regulation of their activities, the Soviet Government
introduced workers control, that is, supervision by the body of workers in these concerns of
production, trade and finance. In December 1917 the banks were nationalised. The Soviet
Government annulled all loans acquired by the Tsarist and Provisional Governments from both
foreign and native capitalists. Foreign trade was declared a State monopoly, and imports and
exports were taken from the hands of private individuals and transferred to State bodies. The
monopoly of foreign trade, introduced by the Soviet Government, was a firm barrier protecting
the country from the economic aggression of the imperialists who were striving to enslave it
and turn it into a colony. The railways and means of communications, the mercantile marine
and large river fleets became the property of the whole people. The Soviet Government
nationalised industrial concerns by means of confiscation without compensation on an ever-
increasing scale. The nationalisation of large concerns in all sectors of industry, was proclaimed
in June 1918.

The nationalisation of large-scale industry, the banks, transport and

foreign trade meant that the Soviet Government had undermined the economic
power of the bourgeoisie and had taken over the key positions of the national
economy.
Capitalist relations of production were replaced by socialist relations in
the nationalised concerns. As social property, the means of production ceased
to be capital. The exploitation of man by man was abolished. A new socialist
labour discipline was introduced and socialist emulation was born among the
workers. Socialist principles of management of production, combining one-man
management with the creative activity of the working masses, were gradually
established.
Overcoming the resistance of the bourgeoisie and the wrecking and
sabotage of bourgeois specialists, and in determined struggle with
disorganising petty-bourgeois influences, the Soviet Government began to
organise public accounting and supervision of production and distribution.

The Economic and Class Structure in the Transitional Period.

The Alliance of the Working Class and the Peasantry

With the nationalisation of large-scale industry, transport, the banks,

etc., the socialist form (sector) of economy arises. But in the transitional
period, alongside the socialist structure based on the social ownership of the
means of production, there are still forms (that is, types of economy) inherited
from the past and based on private ownership. This means that the economy of
the transitional period has a mixed character.
As Lenin pointed out, there were, in the transitional period in the
U.S.S.R., the following five forms of economy:

(1) Patriarchal peasant economy.

(2) Petty commodity production.
(3) The private economy of capitalism.
(4) State capitalism.
(5) Socialist economy.

Patriarchal peasant economy, based on personal labour, was a small-

scale and largely natural economy. In other words, it produced almost
exclusively for its own needs.
Petty commodity production was based on personal labour and connected
to a greater or lesser degree with the market. This was primarily the middle-
peasant economy, producing the bulk of marketed grain, as well as handicraft
production without the use of hired labour. Petty commodity economy
embraced the bulk of the population for a considerable part of the transitional
period.
The private economy of capitalism was represented by the most
numerous of the exploiting classesthe kulaks as well as by the owners of
non-nationalised (mainly small and middling), industrial concerns and by
traders. The capitalist concerns used hired labour, labour-power was a
commodity, exploitation existed and surplus-value was appropriated by the
capitalists.
State capitalism took the form mainly of concessions granted by the
Soviet Government to foreign capitalists, and of certain State concerns rented
to capitalists. Under the dictatorship of the proletariat, State capitalism was
essentially different from that existing under the domination of the bourgeoisie.
Under the dictatorship of the proletariat, it is a form of economy which is
strictly limited by the proletarian authority and is utilised by it in the struggle
with petty-bourgeois disorganising influences and in the building of socialism.
State capitalism occupied only a very small place in the economy of the
U.S.S.R.
Socialist economy comprised, in the first place, the factories, mills,
transport, banks, State farms, trading and other concerns belonging to the
Soviet State. In the second place, it included the co-operativesconsumer,
supply, credit and producer, including their highest form, the collective farms.
The basis of socialist economy was large-scale machine industry. At the very
outset of the transitional period, socialist economy, as the most advanced of
these economic forms, began to playa leading role in the economy of the
country.
In the socialist sector of the economy, labour-power ceased to be a
commodity, labour lost the character of hired labour and became labour for the
worker himself, for society. Surplus-value disappeared. The transition to
planning of the work of nationalised concerns, first in particular industries and
subsequently throughout the whole of the State sector, was gradually achieved.
As a result of the establishment of social ownership of the means of
production, the output of State concerns began to accrue to the State, that is
to the whole of the working people, instead of the capitalists.
The existence of all five of these forms of economy is not inevitable for
every country building socialism. But, as Lenin taught, and as has now been
confirmed by historical experience, there are the following main forms of social
economy in every country during the transitional period from capitalism to
socialism: socialism, petty commodity production, capitalism. To these forms
there correspond the following classes: the working class, the petty
bourgeoisie (particularly the peasantry), and the bourgeoisie. The main
features of the economy of class relationships, and consequently also of the
basic economic policy in the transitional period, are common to all countries.
This does not exclude but on the contrary presupposes the existence of specific
peculiarities in each country.
Compared with their position under capitalism, the position of the
classes, in the transitional period is fundamentally changed.
The working class, from being an oppressed class under capitalism,
becomes the ruling class, holding the reins of power and owning, in common
with all the working people, the means of production which have been
socialised by the State. The material conditions of the working class steadily
improve, its cultural level rises.
The peasantry, the poor and middle peasant masses, obtain from the
State land, emancipation from the yoke of the landowners, protection from the
kulaks, and all round economic and cultural assistance. As a result of the
October Revolution and the assistance of the Soviet Government, the middle
and poor peasantry were already producing about 65 million tons of grain in
1926-7, compared with 40 million tons before the Revolution.
Small-scale peasant commodity production inevitably gives birth to
capitalist elements: class differentiation of the peasantry into poor peasants
and kulaks takes place. But in the transitional period the character of this
process is not the same as under capitalism. Under capitalism the poor
peasants and kulaks increase in numbers, while the middle peasantry
decrease: in their mass they become impoverished and swell the ranks of the
poor peasantry and the proletariat. During the transitional period, owing to the
new conditions of development of peasant economy, the proportion of middle
peasants increases in comparison with the pre-revolutionary period while the
number of poor peasants and kulaks decreases. In the U.S.S.R., during the
transitional period before the main mass of peasants began to take the path of
socialism, the total number and proportion of middle peasants increased as
compared with the pre-revolutionary period, at the expense of a decrease in
the total number and proportion of the poor peasants, a part of whom rose to
the level of the middle peasants. At the same time the total number and
proportion of kulaks considerably decreased, compared with the pre-
revolutionary period, the growth of the kulaks that took place in some years of
the transitional period being considerably less than under capitalism. The
middle peasant became the central figure in agriculture.

Following the October Revolution, already in 1918, the middle peasant predominated.
This was because the peasants had received without payment the land and part of the cattle
and stock of the landowners. In 1918 the kulaks were partially expropriated, being deprived of
125 million acres of land which were given to the poor and middle peasants. In 1928-9 peasant
households were divided as follows: 35 per cent poor peasants, 60 per cent middle peasants
and 4-5 per cent kulaks.

The Soviet Government was guided in its attitude towards the peasantry
during the transitional period by Lenins formula: a firm alliance with the
middle peasant, reliance on the poor peasant and implacable struggle against
the kulak. Lenin taught that the working class, in leading the peasantry, must
always distinguish the two sides in every peasantthe toiler and the private
owner.
The middle peasant has an essentially two-fold character: as a toiler he
gravitates towards the proletariat, but as a small owner towards the
bourgeoisie. Both the bourgeoisie and the proletariat strive to win the mass of
the middle peasantry to their side. In doing so, the working class addresses
itself to the fundamental interest of the peasant as a toiler, while the
bourgeoisie tries to utilise his private interests. During the transitional period,
particularly while the existence of the is based on private ownership and petty
commodity production, there are certain non-antagonistic contradictions
between the working class and the peasantry centring, for example, around
prices and tax scales. But these contradictions are not fundamental. The
interests of the working class and the working masses of the peasantry
coincide on fundamental questions. Both classes are deeply interested in
putting an end to exploitation and in the victory of socialism. This is the
essence of the firm alliance of the two friendly classesthe working class and
the peasantry.
The principle of the alliance of the working class and the peasantry,
under the leading role of the working class, is the foundation of socialist
construction. The most important political task of the party, it was stated in a
resolution at the 12th Congress of the R.C.P.(B), determining the whole
outcome of the revolution, is to defend and develop, with the greatest care and
attention, the alliance of the working class and the peasantry. (The C.P.S.U. in
Resolutions and Decisions of its Congresses, Conferences and Central
Committee Meetings, 7th Russian edition, vol. I, pp. 682-3.)
A firm alliance between the working class and the peasantry is essential
for correct economic relations between town and country, between industry
and agriculture, for the growth of agriculture and its socialist transformation.
The elimination of capitalist forms of economy and the victory of socialism can
only be assured on the basis of the alliance of the working class and the
peasantry.
 The main classes in the transitional period are the working class and the
peasantry.
The bourgeoisie after losing political power and the principal means of
production are no longer one of the main classes of society. The big capitalists
and a considerable section of the urban middle bourgeoisie are deprived of the
means of production at the outset of the transitional period. But there still
remains a section of the urban bourgeoisie, as well as the rural bourgeoisie,
the kulaks. The bourgeoisie still retains considerable strength for a number of
years during the transitional period. This is explained by the inevitable,
spontaneous growth of capitalist elements out of petty commodity economy,
and by the impossibility of immediately replacing capitalism by socialism in all
branches of the economy. The bourgeoisie, even after losing its domination,
retains in some degree its monetary and material resources, and its ties with a
considerable section of the old specialists. It relies on the support of
international capital.
The basic contradiction of the economy of this period is between
socialism-which has been born but is still weak in the early stages, and to
which the future belongsand dethroned capitalism, which is still at the outset
strong, with roots as yet in petty commodity production, but represents the
past. The struggle between socialism and capitalism, around the question who
will beat whom, develops in all spheres of economic life during the transitional
period. There are antagonistic and irreconcilable contradictions between the
working class and the bulk of the peasantry on the one hand, and the
bourgeoisie on the other. In the transitional period the policy of the proletarian
State is first to restrict and squeeze out the capitalist elements, and
subsequently to eliminate them completely. The sharpening of the class
struggle of the proletariat and the working masses against the bourgeoisie,
whose opposition increases as socialist construction expands, is a law of
development in the transitional period.

The Appearance of the Economic Laws of Socialism

To the extent that the socialist sector takes over the key positions of the
national economy, the capitalist forms of economy and their laws of
development lose their dominating position in the national economy at the very
beginning of the transitional period. The development of the national economy
ceases to be governed by the operation of the basic economic law of modern
capitalism. The operation of the law of surplus-value only extend to the
capitalist sector of economy and becomes increasingly restricted.
New economic laws, inherent in socialist production relations arise,
develop and gradually extend the sphere of their operation, on the basis of the
new economic conditions.
The basic economic law of socialism emerges and begins to operate with
the formation and development of the socialist economy. This finds expression,
in the first place, in a radical change in the aim of production. In the socialist
sector, production is carried on, not in order to extract capitalist but for the
satisfaction of the material and cultural needs of the working people and for
the construction of socialism. Secondly, as socialist relations of production are
strengthened and extended, the conditions are created for achieving this aim
by an uninterrupted and rapid growth of industry and extensive introduction of
modern technical methods. The development of industry ceases to be cyclic in
character, economic crises of overproduction cease to occur.
As long as the petty commodity and capitalist sectors exist in the
economy alongside the socialist sector and the problem of who will beat
whom is still not settled, the sphere of operation of the basic economic law of
socialism is restricted. It operates within the bounds of the socialist sector. But
as the socialist sector plays a leading role, and its share in the economy of the
country constantly increases, the basic economic law of socialism begins to
exercise an ever-increasing influence on the development of the entire national
economy.
The Soviet State in its economic policy relied ort this law, developing
socialist production, introducing modern techniques in all branches of the
economy and striving for a systematic improvement of the living standards of
the working people, within the limits imposed by the difficult conditions of the
transitional period.
Social ownership of the enterprises in the socialist sector makes its
planned development both possible and necessary. Based on socialist relations
of production, the economic law of planned (proportional) development of the
national economy emerges and gradually begins to operate during the
transitional period. This law calls for the planned management of the economy
and the establishment by planning of such proportions between branches of
the economy as are necessary for the victory of socialism and for the
satisfaction of the growing needs of society. The law of planned development of
the national economy begins to fulfil the role of the regulator of production in
the socialist sector and exerts an ever greater determining influence on
proportions throughout the national economy. At the outset the scope for the
operation of this new economic law in the U.S.S.R. was narrow, since the
socialist sector embraced only the smaller part of the national economy. The
Soviet Government was only beginning to master the techniques of planning.
As the socialist sector developed, the law of competition and anarchy of
production lost its validity and there was constantly increasing scope for the
operation of the law of the planned development of the national economy.
The operation of the law of value in relation to labour-power ceases in
the socialist sector. Instead there emerges and begins to operate, on the basis
of the new relations of production, the law of distribution according to work, in
accordance with which each worker must be paid according to the amount of
labour he has expended.
Since commodity production and circulation still exists, so also does the
law of value. But thanks to the socialisation of the principal means of
production and the appearance of the economic laws of socialism, the sphere
of commodity production and of the law of value is limited, and they begin to
playa fundamentally different part from their part under capitalism.
The law of value operates within fixed limits as a regulator of production
in the petty commodity and capitalist sectors of the economy. But it is not the
regulator of production in the socialist sector. The law of the average rate of
profit ceases to operate in the socialist sector. Capital investments in this
sector are made on the basis of the law of the planned development of the
national economy.
The proletarian authority increasingly takes hold of commodity
production, the law of value, trade and monetary circulation, and uses them to
develop sodalist forms of economy, to strengthen the economic connections
between industry and peasant economy, and in the struggle with the capitalist
elements. Basing himself on Lenins proposition concerning the new role of
trade and money in the transitional period, Stalin pointed out:

The point is not at all that trade and the monetary system are methods
of capitalist economy. The point is that the socialist elements of our economy,
in fighting the capitalist elements, master these methods and weapons of the
bourgeoisie for the purpose of overcoming the capitalist elements that they
successfully use them against capitalism, use them successfully for the purpose
of building the socialist foundation of our economy. Hence, the point is that,
thanks to the dialectics of our development, the functions and purpose of these
instruments of the bourgeoisie change in principle, fundamentally, change in
favour of socialism, to the detriment of capitalism. (Stalin, Reply to the
Discussion on the Political Report of the Central Committee to the XIVth
Congress of the CPSU(B), Works, vol. VII, p. 379.)

The Bases of Economic Policy in the Transitional Period

Between Capitalism and Socialism

Socialism cannot be built without a correct assessment of the objective

economic conditions of the transitional period, and of the economic laws which
arise on the basis of these conditions. The policy of the Communist party of the
Soviet Union and of the Soviet State was based on Lenins plan for building
socialism, relied on economic laws, and took into account the real balance of
class forces.
Lenins teachings on the victory of socialism in one country were of the
greatest importance for building socialism in the U.S.S.R. They equipped the
party and the working class with a clear perspective and confidence in the
triumph of the idea of scientific socialism.
Two aspects of this question have to be distinguished, the internal and
the international. The internal aspect of the question concerns the mutual
relations of classes within the country. The Communist Party and the Soviet
State based themselves on the idea that the working class can overcome the
contradictions existing between itself and the peasantry, strengthen the
alliance and draw the peasant masses into the building bf socialism. The
working class in alliance with the peasantry is fully capable, after breaking
capitalism politically, of also overcoming its bourgeoisie economically and,
having eliminated the exploiting classes, building socialist society. The
international aspect of the question concerns the relations of the country of
proletarian dictatorship with the capitalist countries. In conditions of the co-
existence of two opposite systemssocialism and capitalismthere is still a
danger of armed aggression against the land of socialism by the hostile
imperialist Powers. This contradiction cannot be resolved by the forces of one
country of proletarian dictatorship alone. Therefore the victory of socialism can
only be final when the danger of intervention and restoration of capitalism by
aggressive imperialist Powers will have disappeared.
An essential condition for the success of socialist construction in the
U.S.S.R. was the routing of the Trotskyist and Bukharinist restorers of
capitalism, who propounded theories calculated to disarm the working class, to
the effect that the construction of socialism in one country was impossible, and
that Russia was not ripe for socialism because of her technical and
economical backwardness.
The Communist Party and Soviet State based themselves on Lenins
propositions that the U.S.S.R. had everything necessary and adequate for the
complete construction of socialism, and that the technical and economic
backwardness of Russia could be completely overcome under the dictatorship
of the proletariat. History has fully confirmed the truth of Lenins propositions.
Fundamental in Lenins plan for building socialism in the U.S.S.R. was the
idea of the creation of a powerful socialist industry, as the material basis of
socialism and as the prerequisite for the gradual transition from small peasant
farming to large-scale collective production, by way of co-operation. The State
plan for the electrification of Russia, the Goelro Plan, adopted in 1920, was of
primary importance in Lenins programme for building socialism. This was the
first perspective plan for the development of the national economy in the
history of mankind, and provided for the creation of the productive and
technical basis of socialism within ten to fifteen years.

The victory of socialism over capitalism and the consolidation of

socialism may be regarded as ensured only when the proletarian State,
having completely suppressed all resistance on the part of the exploiters
and secured complete stability for itself and complete obedience,
reorganises the whole of industry on the basis of large-scale collective
production and on a modern technical basis (founded on the
electrification of the whole of national economy). This alone will enable
the towns to render such, radical assistance, technical and social, to the
backward and scattered rural population as will create the material basis
for enormously raising the productivity of agriculture, and of agricultural
labour in general, thereby stimulating the small tillers of the soil by the
force of example and in their own interests to adopt large-scale,
collective mechanised agriculture. (Lenin, Preliminary Draft of Theses
on the Agrarian Question, 1920, Selected Works, 1950, English edition,
vol. II, Pt. 2, pp. 458-9.)

Lenin provided the basis for the path of the transition of the peasantry to
socialist lines and the new role of co-operation in the socialist reconstruction of
petty commodity production.
Lenins plan for building socialism presupposed all-round development of
the economic links between State industry and the peasant economy. From the
character of small peasant economy; it follows that the vitally necessary form
of economic link with the towns for the peasants is that of exchange through
purchase and sale. During the, transitional period the trade bond between
State industry and the small peasant economy is an economic necessity.
 Consequently the existence of peasant petty commodity production in
the transitional period necessitates the use of the market and a money
economy in the building of socialism.
As early as the spring of 1918 the Soviet Government began to organise
the exchange of goods with the countryside by means of purchase and sale.
Preparation began for a monetary reform. But because of foreign intervention
the whole economy had to be turned to the service of the front, in conditions of
extreme shortage of material resources. Intervention greatly intensified the
ruin of the country which had resulted from the first world war. The Soviet
Government did not have manufactured goods to exchange for agricultural
produce, supplies of which were also considerably reduced. Procurement of
agricultural produce for the army and for the town by way of purchase and sale
was not possible. Hence the necessity arose of food surplus appropriation, that
is, the requisitioning of all the peasant food surpluses by the State. In this way
objective conditions compelled the Soviet Government to introduce the policy
known as War Communism.

Besides the food-surplus appropriation system, which was occasioned by dire necessity
and by the need to supply the army with bread and to save the working masses from
starvation, the policy of war communism presupposed the carrying through of a number of
other measures. Because the State lacked commodity resources, trade in essential products
was forbidden so as to prevent them falling into the hands of speculators. Consumer products
were rationed in very small quantities in the towns. A class principle of distribution was
observed and in addition, the size of the ration depended on the arduousness of work and the
importance of the enterprise. Universal labour service was introduced. The bourgeoisie was
obliged to take part in socially useful labour. Wartime conditions forced the Soviet Government
to take over not only large-scale and middle-size industry, but also a considerable part of
small-scale industry. Because of the shortage of resources, a system of rigidly centralised
supply-in-kind was introduced in industry, subordinated to the priority of serving the front.
Concerns acquired and delivered products by requisition, without money payment and without
any economic independence. All this made it impossible to apply business accounting methods
such as would ensure that the enterprises paid their way and worked at a profit. The national
economy of the U.S.S.R. reached an extremely low ebb as a result of the imperialist and civil
wars. By 1920 large-scale industrial production had fallen to almost one-seventh of the 1913
level, while agricultural production had been approximately halved. Masses of rapidly devalued
paper money were issued to cover State expenditure.
The workers in the factories, just as the soldiers in the Red Army at the front, displayed
mass heroism. Forms of emulation such as Communist Saturdays (subbotniks) assumed
great importance at that time. The working class acquired experience in administering
production.
During the foreign intervention and the civil war, the military and political alliance of the
working class and the peasantry was formed and consolidated. It served to unite the efforts of
the workers and peasants in repulsing the onslaught of alien would-be conquerors and White
Guards, and in defending their motherland, the workers and peasants State. The Soviet
Government gave the peasantry land and protection from the landowner and kulak. The
peasantry gave the working class food supplies through the surplus appropriation system. This
was the basis of the military and political alliance of the workers and peasants under War
Communism.

War Communism was inevitable in the given historical conditions, those

of civil war and economic breakdown. But War Communism with the food
appropriation system and prohibition of trade deprived the peasants of material
interest in production: it was incompatible with the economic bond between
town and country. The proletarian State can therefore avoid War Communism
in the absence of intervention and economic ruin resulting from a prolonged
war. This has been confirmed by the experience of the Peoples Democracies.
Having ended foreign intervention and civil war, the Soviet Government moved
on, in the spring of 1921, to the New Economic Policy, so named to distinguish
it from the policy of War Communism. The main principles of the New
Economic Policy had already been worked out by Lenin in the spring of 1918.
But their application was interrupted by intervention, and the Soviet
Government was only able to proclaim this policy again, and to consistently
carry it out three years later.
The New Economic Policy of the Soviet Government in the transitional
period was an economic policy for building socialism while utilising the market,
trade and monetary circulation. The essence of this policy was an economic
alliance of the working class and the peasantry, which was necessary in order
to draw the peasant masses into socialist construction. Expounding the tasks of
N.E.P., Lenin said at the beginning of 1922:

Link up with the peasant masses, with the rank and file toiling
peasants, and begin to move forward, infinitely more slowly than we
dreamed, but in such a way that the entire mass will actually move
forward with us. If we do that we shall in time get an acceleration of this
movement such as we cannot even dream of now. (Lenin, Political
Report of the Central Committee to the 11th Congress of the R.C.P.(B),
Selected Works, 1950, English edition, vol. II, Pt. 2, pp. 636-7.),

The first task of N.E.P. was the restoration of the economy. A start had to
be made with the revival of the economic interest of the working peasantry in
the swift recovery of agriculture, so as to assure the urban population of
provisions, and industry of raw materials. On this basis, State industry was to
move forward and become closely linked with agriculture, squeezing out
private capital. Subsequently, when sufficient resources had been accumulated,
the problems of creating a powerful socialist industry capable of reorganising
agriculture on socialist lines, had to be solved, and a decisive offensive had to
be opened against the capitalist elements, so as to eliminate them completely.
The New Economic Policy allowed for capitalism within certain limits while
retaining the key positions in the hands of the proletarian State. It allowed for
the struggle of the socialist elements against the capitalist elements, for the
victory of the former, and for the elimination of the exploiting classes and the
creation of the economic basis of socialism.
Trade was the main link at the beginning of N.E.P. which it was necessary
to grasp, in order to drag forward the whole chain of economic construction.
The end of the war made it possible to replace the requisitioning of food
surpluses by the food tax. The food tax, the scales of which were laid down in
advance of the spring sowing, was smaller than the assessments under the
requisitioning scheme, and left the peasants with a surplus of grain and other
products for free sale on the market and for exchange for industrial goods.
Lenin underlined the urgent need to learn to trade, to enable socialist industry
to satisfy the needs of the peasantry.
The need for commodity circulation between town and country
determined the development of trade links in industry itself, and necessitated
an improvement in the monetary economy of the country. With the adoption of
the new economic policy, supply-in-kind within industry was abolished. State
concerns were put on a basis of economic accounting and began increasingly to
work on a self-supporting and profitable basis. Consumer rationing was
replaced by free trade. The monetary reform was completed in 1924 and
provided the country with a stable currency.
Basing itself on the law of the planned development of the national
economy, the Soviet Government gradually restricted the operation of the law
of value and commenced, step by step, to plan State industry.
Within the confines of the State sector, direct planning was carried out,
setting production targets down to factory levels. Fixed prices were established
for the commodities produced by State enterprises. Such planning was not
possible in respect of the peasant economy. The State influenced the peasant
economy by means of indirect economic regulationthrough trade, supply,
purchases, prices, credit and finance. These economic instruments were used
to strengthen the bond with the peasant economy as well as the leading role of
socialist economy. The operation of the law of value on the private market
showed itself in the free formation of prices and the retention of competition.
Speculation existed, and capitalist elements enriched themselves at the
expense of the working people. By concentrating in its hands a growing quality
of commodities, and constantly extending its purchases of agricultural produce,
the Soviet State began, in stubborn struggle with the capitalist elements, to lay
down the main prices of grain and other important commodities, in every
possible way limiting the free play of market prices. The regulating role of the
State, in relation to the private market, constantly increased.
The 11th All-Russian Conference of the R.C.P.(B) posed the task:

Recognising its existence and taking account of its laws, the

market must be mastered. Regulation of the market and monetary
circulation must be taken in its own hands with systematic economic
measures which have been strictly conceived and based on an exact
assessment of market processes. The C.P.S.U. in Resolutions and
Decisions of its Congresses, Conferences and Central Committee
Meetings, seventh Russian edition, Pt. I, p. 588.)

The Communist Party and the Soviet State coped successfully with this
task.
With the aid of socialist industry, the financial and credit system, State
trade, and the co-operatives, the Soviet Government in the course of an
intense class struggle carried out a consistent policy of restricting and
squeezing out the capitalist elements-manufacturers, kulaks and traders.
Taxation of the capitalists was increased and their opportunities for using the
means of production and hired labour were reduced. This meant that the
operation of the law of surplus-value was being increasingly restricted.
Whereas during the first years of N.E.P. there was to some degree a revival
and growth of the capitalist elements, their role in the economy soon began to
decline with increasing rapidity.
The use of the personal material interests of the workers in the
development of socialist production was essential for the growth of State
industry. Basing itself on the law of distribution according to work, the Socialist
State built up the wages of manual and clerical workers more and more in
accordance with the quantity and quality of labour expended by each worker.
This encouraged a steady increase in the productivity of labour.
The economy of the transitional period underwent a two-fold process. On
the one hand, for a certain time and within certain limits, there was a free
growth of capitalist elements. On the other hand there was a steady and far
more rapid planned growth of the socialist elements which determined the
course of the entire national economy.

The share of the private sector accounted for one-quarter of industrial production in the
first years of N.E.P. but had fallen to one-tenth by 1929. Whereas the share of private trade in
retail turnover amounted to about three-quarters in 1921-2, by 1926 State and co-operative
trade was successfully squeezing out the private traders and had a firm hold of the main
positions in retail turnover.
The revival of trade turnover and strengthening of the trade bond between town and
country made possible a rapid restoration of the economy and the growth of socialist industry.
Taking advantage of the superiority of socialist industry, the Soviet Government secured the
restoration of the volume of output of large-scale industry to the 1913 level by 1926. Thanks to
the varied help extended to the working peasantry by the Soviet Government, agricultural
production exceeded the 1913 level by 1926.

With the restoration of industry and agriculture the transition to the

socialist reconstruction of the entire national economy began. As industrial and
agricultural output increased, the material and cultural level of the working
people was raised.
During the transitional period from capitalism to socialism the Soviet
State and the working people of the U.S.S.R., led by the Communist Party,
accomplished the following tasks in conformity with economic law. The key
positions of the national economy were taken over through socialist
nationalisation; the trade bond between socialist industry and the peasant
economy was established and the supply of consumer goods to the countryside
was organised; socialist industrialisation was carried out and a production bond
of the town with the countryside, through the supply to it of advanced machine
technique, was set up: agriculture was collectivised and the economic basis of
socialism brought into being in the countryside.
With the consolidation of socialist relations of production in industry,
extensive possibilities for socialist industrialisation of the country were opened
up. By under-pinning agriculture with an advanced technical base, socialist
industrialisation created at the same time the material foundation for the
socialist collectivisation of the peasant economy. The objective necessity for
industrialisation of the country and for collectivisation of agriculture springs
from the law of the obligatory correspondence of relations of production to the
character of the productive forces, and from the basic economic law of
socialism. These laws call for the consolidation of socialist production relations
throughout the national economy, in agriculture as well as in industry. The
productive forces can only acquire full scope for their development under these
conditions. Socialist industrialisation of the country and collectivisation of
agriculture ensure the victory of socialism throughout the national economy,
the systematic growth of production and of the living standards of the people.
The New Economic Policy was the practical expression of Lenins plan for
building a socialist economy in the U.S.S.R., which was elaborated further in
the works of Stalin and in the decisions of the Communist Party. The
fundamental principles underlying the New Economic Policy in the U.S.S.R.,
serve as a guide to action for any country building socialism. However, the
concrete forms of economic construction in particular countries must take
account of the peculiarities of the development of each, and the circumstances
in which the socialist revolution takes place. Lenin pointed out that:

Marx did not commit himselfor the future leaders of the socialist
revolutionto matters of form to methods and ways of bringing about
the revolution; for he understood perfectly well that a vast number of
new problems would arise, that the whole situation would change in the
process of the revolution, and that the situation would change often and
considerably in the process of revolution. (Lenin, The Tax in Kind,
Selected Works, 1950, English edition; vol. II, Pt. 2, p. 535.)

The construction of a socialist economy in the Peoples Democracies

takes place in more favourable circumstances than was the case in the
U.S.S.R., which was the only country building socialism. It first fell to the
Soviet Union to open up the path for the transition to socialism. Today each of
the Peoples Democracies is supported by the tremendous assistance of the
whole camp of socialism, and can use the accumulated experience of the
building of socialism in the U.S.S.R.

BRIEF CONCLUSIONS
(1) The great October Socialist Revolution for the first time in the history
of mankind opened up the path to socialism. The historical inevitability of the
proletarian revolution stems from the law of the obligatory correspondence of
relations of production to the character of the productive forces. A transitional
period is necessary for the revolutionary transformation of capitalist into
socialist society. The State in the transitional period is the dictatorship of the
proletariat, taking the form of either Soviet power of a peoples democracy.
Socialist nationalisation of the principal means of production belonging to the
exploiting classes brings about the creation of a socialist form of economy,
embracing the key positions of the national economy.
(2) The main forms of the social economy in the transitional period are:
socialism, petty commodity production and capitalism. The working class, the
peasantry and the bourgeoisie are the corresponding classes. The main classes
in the transitional period are the working class and the peasantry. The highest
principle of the dictatorship of the proletariat is the alliance, directed against
the exploiting classes, of the working class and the peasantry, under the
leadership of the working class. The basic contradiction of the transitional
period is that between growing socialism and dying capitalism. The restriction
and squeezing out, and subsequent elimination of the capitalist elements is
achieved in the course of an intense class struggle.
(3) During the transitional period, as the socialist sector grows and
strengthens itself and capitalist elements are overcome, the economic laws of
capitalism, which express relations of exploitation, quit the stage. The
economic laws of socialism, on which the proletarian State relies, come into
being and gradually extend the sphere of their operation. The law of value,
trade, money and credit are used to an increasing extent by the proletarian
authority to the detriment of capitalism and, in the interests of socialism.
(4) The economic policy of the proletarian dictatorship in the transitional
period is directed towards the victory of the socialist over the capitalist
elements and the construction of a socialist economy, using commodity
production and the market. This policy secures the economic bond between
socialist industry and the peasant economy, as well as socialist industrialisation
of the country and collectivisation of agriculture.
 CHAPTER XXIV

SOCIALIST INDUSTRIALISATION

Large-scale IndustryThe Material Basis of Socialism. The

Essence of Socialist Industrialisation

Socialism can only be built on the basis of large-scale machine

production. Only large-scale machine production both in town and country can
ensure the victory of the socialist forms of economy over the capitalist forms,
an uninterrupted growth of the productivity of labour and the improvement of
the welfare of the working people.
Lenin wrote: A large-scale machine industry that is also capable of re-
organising agriculture is the only material basis that is possible for socialism.
(Lenin, Theses for the Report on Tactics of the R.C.P. at the 3rd Congress of
the Communist International, Selected Works, 1950, English edition, vol. II,
Pt. 2, p. 576.)
Capitalism developed large-scale industry and at the same time created
the necessary material prerequisites for the proletarian revolution and the
construction of socialism. But because of its inherent contradictions capitalism
was unable to reconstruct all branches of the economy in all countries on the
basis of large-scale machine production. The majority of countries, especially
the colonial and dependent countries, lack an adequately developed large-scale
industry. The capitalist countries have a numerous class of peasants carrying
on a small-scale personal, private economy based on manual labour and
primitive technique. Yet the victory of socialism throughout the national
economy cannot be secured without the reconstruction of all branches of
production on the basis of modern techniques.
The most important part in large-scale industry is played by the branches
producing the means of productionmetals, coal, oil, machinery, equipment,
building materials, etc., that is, heavy industry. Socialist industrialisation
means therefore the priority development of heavy industry with its core the
engineering industry.
The centre of industrialisation, the basis for it is the development of
heavy industry (fuel, metal, etc.), the development in the last analysis of the
production of the means of production, the development of our own
engineering industry. (Stalin, The Economic Situation of the Soviet Union and
the Policy of the Party, Works, 1954, English edition, vol. VIII, p. 127.)
The engineering industry occupies a special place in the economy of a
country. A developed engineering industry is essential for the re-equipment of
all branches of the national economy with modern techniquesmachinery,
machine tools, appliances, apparatus and instrumentsand is the most
important source of technical progress.
Socialist industrialisation ensures a growing preponderance of the
socialist forms of industry over the small commodity and capitalist forms. It
creates the material basis for the development of socialist forms of economy,
and the elimination of capitalist elements. It endows the socialist forms of
economy with the technical superiority necessary in order to conquer
completely the capitalist sector.
The development of heavy industry is the key to the socialist
transformation of agriculture on the basis of modern machine techniques. In
supplying agriculture with tractors, combines and other agricultural machinery,
socialist industry serves as the foundation for the coming into being and
development of these new productive forces in the countryside which are
necessary for the victory of the collective farm system.
Socialist industrialisation increases the numerical and relative importance
of the working class and heightens its leading role in society. It strengthens the
basis of the dictatorship of the working class and of its alliance with the
peasantry.
Socialist industrialisation ensures the technical and economic
independence and defensive capacity of a country building socialism in the
presence of a hostile capitalist world. The development of heavy industry
provides the material foundation for producing modern weapons necessary to
defend the country from the aggression of hostile imperialist States.
Accordingly, socialist industrialisation is such a development of large-
scale industry, and in the first place of heavy industry, as will ensure the
reconstruction of the entire national economy on the basis of modern machine
techniques, the victory of socialist forms of economy, the countrys technical
and economic independence of the capitalist world, and its defensive capacity.
Socialist industrialisation is dictated by the demands of the law that the
relations of production must necessarily correspond to the nature of the
productive forces and by the demands of the basic economic law of socialism,
by the necessity of ensuring the material prerequisites for the building of
socialism, for uninterrupted growth of production and a steady improvement in
the welfare of the people.
Socialist industrialisation was of vital importance for the U.S.S.R. Pre-
revolutionary Russia, although it possessed a large-scale industry, was
primarily an agrarian country. In the level of its industrial development,
particularly of heavy industry, it was considerably behind than the main
capitalist countries.

While occupying first place in the world in the size of its territory and third place in the
size of its population (after China and India), Tsarist Russia stood fifth in the world for volume
of industrial production, and fourth in Europe. Agricultural production in 1913 accounted for
579 per cent of gross production of large-scale industry and agriculture taken together, while
industrial production accounted for 42.1 per cent. Heavy industry greatly lagged behind light
industry. Many important branches of industry, producing machine-tools, tractors, automobiles
and other items, were non-existent. Pre-revolutionary Russia was four times worse off for
modern instruments of production than England, five times worse off than Germany and ten
times worse off than America. Economic and technical backwardness made Tsarist Russia
dependent on the developed capitalist countries. It was obliged to import a considerable part of
its equipment and other means of production from abroad. Foreign capitalists were in
command of the countrys main branches of heavy industry.

The rule of the capitalists and landlords constantly increased Russias

dependence on the western imperialist Powers. A direct threat of loss of
national independence hung over the country. The exploiting classes were
incapable of abolishing Russias age-long technical and economic
backwardness. Only the working class could carry out this historic task. Already
on the eve of the great October Revolution, Lenin. was stressing that it was a
question of life or death for Russia to overtake and outstrip the most highly
developed capitalist countries, technically and economically.

The result of the revolution has been that the political system of
Russia has in a few months caught up with that of the advanced
countries.
But that is not enough. The war is inexorable; it puts the
alternative with ruthless severity: either perish, or overtake and outstrip
the advanced countries economically as well.
Perish or drive full-steam ahead. That is the alternative with which
history confronts us. (Lenin, The Impending Catastrophe and How to
Combat it, Selected Works, 1950, English edition, vol. II, Pt. I, p. 164.)

The level of development of the productive forces and particularly the

existence of large-scale concentrated industry in pre-revolutionary Russia was
sufficient for the victory of the proletarian revolution, for the establishment of
Soviet Powerthe most progressive political power in the world. However, for
the creation of the economic basis of socialism, for the socialist transformation
of small-scale backward agriculture and for the improvement of the living
standards of the people, it was essential to end the age-long technical and,
economic, backwardness of the country and to create a powerful heavy
industry. Without a developed heavy industry our country would have been
doomed to become an agrarian appendage of the more developed capitalist
countries, to lose its independence and with it, all the conquests of the socialist
revolution.
With the victory of the proletarian revolution in Russia, a contradiction
arose between the most progressive political power in the worldSoviet power
and the backward technical and economic basis inherited from the past. The
Soviet Government could not for long have maintained itself on the basis of a
backward industry. Socialist industrialisation was necessary in order to
overcome this contradiction.
Thus socialist industrialisation in the U.S.S.R. was an historical necessity,
springing from the most vital and pressing needs of socialist construction.
The Communist Party and the Soviet State recognised this, and
consistently put into effect a policy of socialist industrialisation. The 14th
Congress of the Communist Party (1925) posed socialist industrialisation as its
main task. In the decisions of the Congress it was stated:

Economic construction must be carried out with a view to converting the

U.S.S.R. from a country importing machinery and equipment into a country
producing machinery and equipment, so that in conditions of capitalist
encirclement it will not be henceforth possible for the U.S.S.R. to be converted
into an economic appendage of the capitalist world economy, and it will be an
independent economic unit building itself up in the socialist way. (The C.P.S.U.
in Resolutions and Decisions of its Congresses, Conferences and Central
Committee Meetings, seventh Russian edition, Pt. 2, p. 75.)
The Rate of Socialist Industrialisation

The fundamental tasks of the socialist transformation of the country and

of securing its independence required that industrialisation be carried out in the
shortest possible period known to history.
The need for a high rate of industrialisation was occasioned by the
external and internal circumstances of the Soviet Union, the first land of
socialism in the world.
The external circumstances of development of the U.S.S.R. were
conditioned by the presence of a hostile capitalist environment. The imperialist
countries possessed a more powerful industrial base, and sought to destroy or
at least to weaken the Soviet Union. The question of the rate of industrial
development would not have been so acute if the Soviet Union had possessed
the same developed industry as the advanced capitalist countries. Nor would
this question have been so acute if there had been a dictatorship of the
proletariat in other more industrially developed States as well. But the Soviet
State was a technically and economically backward country and the only
country with the dictatorship of the proletariat. In view of this a basis of
advanced industry had to be brought into being at high speed.
The internal circumstances of development of the U.S.S.R. also
demanded a high rate of industrialisation. So long as the Soviet country
remained a land of small peasants, there remained within it a more stable
economic base for capitalism than for socialism. In order to answer the
question who will beat whom, the scattered private property economy of the
peasant had to be transformed in a historically short time, on the basis of
collective labour and armed with modern techniques. Capitalism had to be
deprived of its basis in petty commodity production. This task could not be
carried out without the rapid development of heavy industry.
Stalin, in stressing the historical necessity for a high speed of socialist
industrialisation, said: We are 50-100 years behind the advanced countries.
We must make good this distance in 10 years. Either we do it, or they crush
us. (Stalin, The Tasks of Business Executives, Works, vol. XIII, p. 39.)
The possibility of a high rate of socialist industrialisation was due to the
advantages of the socialist economic system and the particular features of the
socialist method of industrialisation.

The average yearly rate of growth of industrial production in the U.S.S.R. was about 20
per cent between 1929-37, while in the capitalist countries it averaged no more than 0.3 per
cent during this period. The speed of industrial growth in the U.S.S.R. many times exceeded
that of the main capitalist countries at the peak of their development. In the U.S.A., for
example, the average yearly growth of industrial production was 1890-5 8.2 per cent, 1895-
1900 5.2 per cent, 1900-5 2.6 per cent, 1905-10 3,6 per cent.

The Socialist Method of lndustrialisation. Resources for

 Socialist lndustrialisation

Only the socialist method of industrialisation, dependent on the new laws

of socialism, can achieve the industrialisation of a country in the shortest
historical time. Industrialisation in the capitalist countries usually commences
with the development of light industry. The turn of heavy industry only comes
after a prolonged period of time. This method of industrialisation was
unacceptable for the Soviet country. It would have meant the destruction of
the socialist revolution and would have converted the U.S.S.R. into a colony of
the imperialist States. The Communist Party rejected the capitalist method of
industrialisation and started the industrialisation of the country with the
development of heavy industry.
Capitalist industrialisation took place spontaneously, as a result of the
capitalist drive for profit. Socialist industrialisation is carried out on the basis of
the law of the planned development of the national economy, for the purpose
of building socialism and satisfying the growing needs of the working people. It
could not be achieved if the regulator of production in the socialist sector were
the law of value. The Soviet State laid down, in a planned way, such
proportions in the allocation of labour and means pf production to the different
sectors as were dictated by the needs of socialist industrialisation and secured
priority to the development of heavy industry at a high speed. Under the 1st
and 2nd Five-Year Plans the Soviet State directed the bulk of capital investment
not into light industry, despite its greater profitability, but into the enterprises
of heavy industry, the construction of which was of decisive importance for the
victory of socialism. The financial and credit system and foreign trade were
used in the interests of industrialisation.
Capitalist industrialisation increases the exploitation and impoverishment
of the working class and the peasantry, widens the gulf between town and
country, and enslaves the colonial peoples. Socialist industrialisation, in
accordance with the requirements of the basic economic law of socialism,
provides a solid material foundation for the uninterrupted growth of production,
using the most modern techniques. It puts an end to unemployment and
increases the real wages of the workers.
Socialist industrialisation provides a basis for the progress of agriculture.
It leads to the rise of the living standards of the peasantry, bringing town and
countryside closer together and strengthens the alliance between the working
class and the peasantry. The Communist Party rejected the hostile aims of the
Trotskyists, who proposed to industrialise by ruining the peasantry, and tried in
this way to undermine the alliance of the working class and peasantry. Socialist
industrialisation is a powerful factor in the economic and cultural development
of the formerly backward national regions.
The socialist method of industrialisation steadily extends the internal
market, and in this way creates a firm internal basis for industrial
development. The direct interest of the workers and peasants in socialist
industrialisation stems from all the foregoing.
The industrialisation of such a backward country as Russia was a difficult
matter, since the creation of a powerful heavy industry required huge material
and financial expenditures.
Alongside the merciless exploitation of the workers and peasants, an
important role in the industrialisation of the capitalist countries was played by
the influx of resources from without, from colonial pillage, war indemnities and
enslaving loans and concessions. These methods of mobilising resources for
industrialisation are incompatible with the principles of the socialist system.
The Soviet Union had to find ways of accumulating resources for heavy
industry without enslaving loans from abroad, from internal sources alone,
from the planned carrying out of socialist accumulation. Socialist accumulation
is the utilisation of part of the national income for the expansion of socialist
production. The accumulation of the necessary resources for building new
factories necessitated the strictest economy. We are exercising economy in all
things, wrote Lenin, this must be so, because we know that unless we save
heavy industry, unless we restore it, we shall not be able to build up any
industry; and without that we shall be doomed as an independent country.
(Lenin, Five Years of the Russian Revolution and the Prospects of the World
Revolution. Report to the 4th Congress of the Communist International,
Selected Works, 1950, English edition, vol. II, Pt. 2, p. 697.).
In carrying but the difficult task of accumulating resources for
industrialisation, the Soviet State relied on the superiority of the socialist
economy.
The expropriation of the landowners and capitalists made it possible to
use for socialist industrialisation a considerable part of the resources which had
formerly been appropriated by the exploiters and expended, on parasitic
consumption. Soviet power freed the country from huge annual payments
abroad as interest on the Tsarist loans and as dividends to foreign capitalists
on their investments in Russia. Before the revolution, 800-900 million gold
roubles (85-95 millions) were expended annually in this way.
The Soviet peasantry got rid of rent payments to the land-owners and
considerable indebtedness to the banks. Since the peasantry was interested in
the development of industry it was able to allocate a part of its resources for
this purpose.
The incomes of nationalised industry, foreign trade, State internal trade
and the banking system were the most important sources of finance for
socialist industrialisation. Their importance constantly increased with the
growth of socialist industry.
Socialist industry has indisputable advantages over capitalist industry in
ensuring the growth of accumulation. It is the largest and the most
concentrated industry, being on a nationwide scale, and is freed from the
operation of the law of competition and anarchy of production. The planned
direction of industry, the rational use of its resources, the labour enthusiasm of
the working class and the rapid development of techniques created conditions
for an uninterrupted growth in the productivity of labour. As a result, socialist
industry was enabled steadily to reduce the cost of production, that is, the
expenditure of enterprises on the production and sale of their products,
expressed in money terms.
One of the important advantages of socialist economy over capitalist is
the concentration of the entire monetary accumulation of State and co-
operative enterprises in the country, as well as the free resources of the
population deposited in State credit institutions, and their planned use for
industrial development. The Soviet State ensured the wise expenditure of
accumulated resources on the most important requirements of
industrialisation. It followed a policy of strictest economy, all round
simplification and cheapening of the State and cooperative apparatus, firmer
cost-accounting, financial discipline and opposition to unnecessary expenditure
of State resources.
All these sources of internal accumulation provided thousands of millions
of roubles for industrialisation and made possible large-scale capital investment
in industry, particularly in heavy industry.
In this way the Soviet Government successfully overcame the difficulties
connected with the accumulation of resources for industrialisation.
Application of the socialist method of industrialisation meant a great gain
in time, securing the creation of a first-class socialist industry in the shortest
possible time and with a high rate of growth.

Capital Construction. The Mastery of New Techniques

and the Problem of Cadres

The accomplishment of socialist industrialisation requires the expansion

of capital construction, which was realised in the U.S.S.R. on a large scale. The
building of new enterprises, in which more than half the total capital
investments in industry was spent, played the chief role in the capital works.
The specific feature of socialist industrialisation in the U.S.S.R., which
was determined by the historical conditions of the development of the first
stage of socialism, was the need for the creation of all the basic branches of
modern heavy industry in the shortest space of time. Scores of branches of
modern industry which did not exist in pre-revolutionary Russia, the
automobile and tractor industries, the machine-tool industry, a number of
chemical industries, the aviation industry, the production of modern agricultural
machinery and high-grade steels, and many other industries which in the
capitalist countries had been the result of a long period of historical
development, were created in the U.S.S.R. during the years of the pre-war
Five-Year plans. The basic equipment of the most important branches of heavy
industry was created almost anew in a short space of time.
The building of new enterprises and reconstruction of those already
operating were carried out through the use. on a mass scale of the
achievements of modern world technique. The new industrial enterprises were
equipped with the latest machine-tools, lathes and apparatus. The process of
technical reconstruction covered all branches of industry.
As a result of all this, during the years of the pre-war Five-Year plans, a
powerful industry equipped with up-to-date machinery was created.

The basic production funds of all industry (production buildings and installations,
machinery and equipment) in 1937 were 5.5 times greater than in 1928, while in the branches
producing the means of production they were 7 times greater. During the Five-Year Plans
thousands of factories and mills were put into operation. They included scores of giant plants of
socialist industry; the Magnitogorsk and Kuznets metallurgical combines, the Dnieper hydro-
electric station, the Stalingrad and Kharkov tractor works, automobile factories at Moscow and
Gorky, the Urals and Kramatorsk heavy engineering factories, the ball-bearing factory in
Moscow the chemical combines at Stalinogorsk, Solikamsk and Berezniki, and numerous other
enterprises. The new works began to occupy chief place in the total volume of industrial
production. Already by 1937 more than 80 per cent of all production came from enterprises
newly built or reconstructed during the first two Five-Year Plans.
During the first Five-Year Plan (1929-32) capital investment in industry amounted to
35.1 milliard roubles (in present-day prices) of which 30.1 milliard roubles were invested in
heavy industry. During the second Five-Year Plan (1933-7) capital investment in industry
amounted to 82.8 milliard roubles, of which 69.1 milliard roubles were directed into heavy
industry. During the three and a half years of the third Five-Year Plan (1938-June 1941) 81.6
milliard roubles were invested in industry, of which 70.3 milliard roubles were invested in heavy
industry.

The creation of numerous enterprises equipped with up-to-date

machinery set a new, difficult task, that of providing industry with cadres of
qualified workers and specialists capable of fully mastering and utilising this
technical equipment. These cadres had to be created on a mass scale and in a
short space of time.
The problem of supplying labour-power for socialist industry was decided
by other means than in the conditions of capitalism, where the chief source of
additional labour-power is the reserve army of unemployed. Unemployment
was completely eliminated in the U.S.S.R. by the end of 1930, during the years
of the first Five-Year Plan. The chief sources from which industry was provided
with cadres were the natural increase in the urban population and the reserves
of labour-power in the countryside, produced as a result of the new machinery
with which agriculture was equipped and the resulting increase in the
productivity of labour.
Socialist industrialisation required a systematic rise in the skill of the
workers.
The personal interest of the masses in the development of socialist
industry, the new character of labour and the growth in the technical efficiency
of the workers was shown in the increased activity and creative initiative of the
working class.
The task of training new cadres of production engineers and technicians
presented itself in all its acuteness. The training of skilled workers in factory
schools, and at various courses for production and technical training of new
workers, was organised on a large scale. The Soviet States planned
organisation of industrial training and the interest of the working masses in
raising socially-owned production accelerated and facilitated the mastery of
new techniques. In this way the conditions for a rapid growth in the
productivity of labour were created.
The working class had to create its own intelligentsia, capable of serving
the interests of the people and taking an active part in socialist construction.
During the first and second Five-Year Plans, the Soviet State developed a huge
programme for training cadres, through its network of higher educational
institutions and technical colleges, for industry and other sectors of the
national economy.

Between 1928 and 1937 the number of manual and clerical workers in industry
increased from 3.8 millions to 10.1 millions, i.e., 2.7-fold. The number of skilled workers using
the newest mechanical equipment grew considerably more rapidly than the working class as a
whole. Between 1926 and 1939 the number of turners increased 6.8-fold, milling machine
operators 13-fold, etc. The number of diploma engineers increased 7.7-fold.
 The Conversion of the U.S.S.R. from a Backward
Agrarian Country into an Advanced Industrial Power

The victory of socialist industrialisation in the U.S.S.R. was made possible

because the Communist Party and the Soviet State based their policy on the
laws of economic development and skilfully utilised the advantages of the
socialist economy. As required by the task of building socialism and satisfying
the growing material and cultural needs of the working people, industrial
construction was developed on a gigantic scale. The programme of
industrialisation of the country found its practical embodiment in the Five-Year
Plans, which gave the Soviet people a clear perspective and proved a powerful
force, mobilising the working people for the building of socialism.
During the first Five-Year Plan mass socialist emulation was developed, in
the effort to fulfil and overfulfil the plans. The second Five-Year Plan was
marked by the rise of the Stakhanovite movement. This was connected with
the mastery of modern first-class techniques by the workers; it shattered the
technically backward, low standards of output and replaced them with higher
standards. The Stakhanovite movement was a new stage in socialist emulation.
This emulation of the broad masses of the working class brought out the
progressive role of the new socialist relations of production, as the chief and
decisive force making for a great upsurge of the productive forces. Socialist
emulation opened up enormous reserves for increasing the productivity of
labour and speeding up the rate of industrialisation. Socialist emulation, widely
developed, was the chief factor in the fulfilment of the first and second Five-
Year Plans ahead of time.
An important part in the struggle to industrialise the country was played
by the consistent application of the economic law of distribution according to
work which combined the personal material interests of the working people
with the interests of social production. Payment for work in accordance with its
quantity and quality, encouraged the growth of the productivity of labour,
improvement in the skill of the workers and perfecting of production methods.
The successful fulfilment of the industrialisation programme changed the
balance between industry and agriculture. While agricultural production
increased, industrial production increased far more rapidly. This resulted in a
sharp increase in the share of industrial production in the production of the
country as a whole. Socialist industry was transformed into the decisive force
of the national economy. The relative proportions of the branches producing
the means of production and the branches producing consumer goods was
altered. Production of means of production took the predominant place in the
total volume of industrial production, and began to play a leading part in the
development of industry and the economy of the entire country.

Engineering in the U.S.S.R. had reached a level of development where it was capable of
producing within the country any machines that might be required. The Soviet Union had
achieved technical and economic independence of the capitalist countries.
Between 1913 and 1940 production of large-scale industry in the U.S.S.R. Increased
nearly twelvefold. In volume of industrial production the Soviet Union already occupied, at the
end of the second Five-Year Plan, first place in Europe and second place in the world. The
U.S.S.R. also occupied second place in the world for volume of railway-freight turnover. The
share of large-scale Industry In gross output of large-scale industry and agriculture combined,
had been raised from 42.1 per cent in 1913 to 77.4 per cent in 1937. In 1913 the share of
means of production in gross output of all Industry was 33.3 per cent and in 1940 more than
60 per cent. On the eve of the first Five-Year Plan, the U.S.S.R. imported approximately one-
third of all its machinery. Already by 1932 less than 13 per cent was imported, and by 1937
only 0.9 per cent. The Soviet Union not only ceased to import automobiles, tractors agricultural
and other machinery from the capitalist countries, but even commenced to export them.

The rapid growth of Soviet industry made the large-scale socialist

enterprise predominant in industrial production. In 1924-5 the share of the
private sector in the U.S.S.R.s industrial output amounted to 20.7 per cent.
With the completion of the second Five-Year Plan private industry was finally
eliminated. The socialist system had become the only system in the industry of
the U.S.S.R.
Socialist industrialisation raised the material and cultural level of the
working people. The building of heavy industry provided a basis for the
technical reconstruction and rapid development of the sectors producing
consumer goodsagriculture, the light and food industries. Capital investment
in the consumer industries was almost trebled in the second Five-Year Plan as
compared with the first.
In the course of socialist industrialisation there were fundamental
changes in the location of industry. New first-class industrial centres were
founded in the eastern regions of the countryin the Urals, Western Siberia
and Kazakhstan. Socialist industrialisation. was accompanied by the expansion
of the old towns and the creation of new towns. Throughout the country, and
particularly in the east, large towns and industrial areas sprang up which
became economic and cultural centres completely transforming the character
of the surrounding districts.
With the success of the industrialisation programme the Soviet Union was
converted from a backward agrarian country into a mighty socialist industrial
Power. A solid industrial base had been created for the technical reconstruction
of the entire national economy, for strengthening the defensive capacity of the
U.S.S.R. and for a steady improvement of the living standards of the people.
The contradiction between the most progressive political authority in the world
and the backward technical and economic base inherited from the past had
been abolished.
Thus during the pre-war Five-Year Plans there took place a tempestuous
growth of the productive forces of socialist industry. In the thirteen pre-war
years the Soviet Union had covered the ground which the developed capitalist
countries had taken approximately ten times longer to cover. This was a most
outstanding leap forward from backwardness to progress, the like of which
world history had never known. The gigantic development of the productive
forces of the U.S.S.R. would not have taken place if the old capitalist relations
of production had not been replaced by the new socialist relations.
The victory of industrialisation in the U.S.S.R. was achieved by the
Communist Party and the Soviet State in strugglestruggle to overcome the
enormous difficulties arising from the economic backwardness of the country,
the most stubborn resistance of the capitalist elements which were being
eliminated, and the existence of a hostile capitalist environment. The
Communist Party won its fight for the industrialisation of the country in battle
against the worst enemies of socialism, the Trotskyists and Bukharinists, who
opposed to the Partys general line of industrialising the country the line of
converting the Soviet Union into an agrarian appendage of imperialist countries
and tried to deflect the U.S.S.R. on to a capitalist path of development.
The socialist industrialisation of the U.S.S.R. was of enormous
international significance. The rapid conversion of a formerly backward country
into a powerful industrial Power demonstrated the indisputable advantages of
the socialist system and strengthened the position of the U.S.S.R. in the
international arena. The experience of industrialisation in the U.S.S.R. is today
being used by the countries of peoples democracy moving along the road of
socialist construction.
The process of industrialisation in each country taking this path depends
on both internal and external conditions. The Soviet Union being the first, and
for a long time the only country building socialism in an environment of hostile
capitalist Powers, was obliged to bring into being a heavy industry, comprising
all basic branches, in an extremely short period and from its internal resources
alone. This gave rise to enormous difficulties in the building of socialism in the
U.S.S.R. The countries of peoples democracy enjoy today different and more
favourable circumstances, since there exists a powerful camp of democracy
and socialism. Industrial construction in these countries takes into account the
particular features of each country, which include their natural conditions and
the economic expediency of developing this branch or that, bearing in mind all
the advantages of a broad division of labour and economic mutual assistance
between the countries of the socialist camp.

BRIEF CONCLUSIONS
(1) A large-scale machine industry is the material basis of socialism.
Heavy industry is of decisive importance for building socialism. The essence of
socialist industrialisation is the creation, using internal sources of accumulation,
of a powerful heavy industry capable of re-organising the entire national
economy, including agriculture, on the basis of the most modern techniques
and of assuring the complete pre-dominance of socialist forms of economy, the
technical and economic independence of the country, and its defensive
capacity.
(2) The socialist method of industrialisation, having decisive advantages
over the capitalist method, ensures the priority development of heavy industry
at a high speed. Socialist industrialisation is carried out on a planned basis in a
historically very brief period, and is put into effect in the interests of the
working people. The nationalisation of industry, the banks, transport and
foreign trade creates new sources of accumulation undreamed-of under
capitalism, and makes possible the rapid mobilisation of resources for building
up heavy industry.
(3) The Soviet State, led by the Communist Party, carried out the
programme of industrialisation embodied in the Five-Year Plans, thanks to the
fact that its policy was founded on economic laws and that it utilised the
superiority of socialist economy and the labour enthusiasm of the working class
and the entire working people. During the pre-war Five-Year Plans a technically
advanced industry was built up which was the basis for the technical
reconstruction of the entire national economy, strengthening the defensive
capacity of the country and raising the living standards of the people. The
Soviet Union was transformed into a strong industrial Power, independent of
other countries and producing all the machinery and equipment it required with
its own resources. The new socialist relations of production in the country were
the decisive force which determined and secured the rapid growth of the
productive forces of socialist industry.
CHAPTER XXV

THE COLLECTIVISATION OF AGRICULTURE

The Historical Necessity for Collectivisation of
Agriculture. Lenins Co-operative Plan

To build socialism it is necessary not only to industrialise a country but

also to transform agriculture on socialist lines. Socialism is a system of social
economy which combines industry and agriculture on the basis of socialist
ownership of the means of production and collective labour.
The socialist transformation of agriculture is the most difficult task of the
revolution after the conquest of power by the working class. In contrast to
industry, where the socialist revolution finds large-scale and highly-
concentrated production, agriculture in the capitalist countries has not reached
such a degree of capitalist socialisation of production. Small-scale scattered
peasant households numerically predominate in it. So long as small-scale
individual farming is the predominant form of agriculture, the basis of the
bourgeois economic order continues to exist in the countryside, and the
exploitation of the poor and a considerable section of the middle peasantry by
the rural bourgeoisie, remains. The system of small-scale commodity
production is unable to save the peasant masses from poverty and oppression.
Only the socialist road can save the working masses of the peasantry
from every kind of exploitation, poverty and ruin. Marxism-Leninism rejects as
senseless and criminal the road of expropriation of the small- and middle-scale
producers and the conversion of their means of production into State property.
Such a course would undermine any possibility of the victory of the proletarian
revolution and would drive the peasantry for a long time into the camp of the
enemies of the proletariat. F. Engels wrote:

When we are in possession of State power we shall not even think

of forcibly expropriating the small peasants (regardless of whether with
or without compensation) as we shall have to do in the case of the big
landowners. Our task relative to the small peasant consists, in the first
place, in effecting a transition of his private enterprise and private
possession to co-operative ones, not forcibly but by dint of example and
the offer of social assistance for this purpose. (Engels The Peasant
Question in France and Germany, Marx and Engels, Selected Works,
1951, English edition, vol. II, p. 393.)
 Lenin, in his plan for building socialist society, was guided by the principle
that the working class must build socialism in alliance with the peasantry. The
plan worked out by Lenin, for the transition of the peasantry from small-scale
private property farming to large-scale socialist farming through co-operation,
is an essential element of the general plan for building socialism.
Lenins co-operative plan was based on the fact that, in the conditions of
the dictatorship of the proletariat, co-operation is the easiest, most
understandable and advantageous path for millions of peasants to use in
passing from scattered individual farming to large-scale productive unitsthe
collective farms. The most important economic prerequisite for productive co-
operation by the bulk of the peasantry is the all-round development of a large-
scale socialist industry, capable of re-organising agriculture too on a modern
technical basis. The peasantry are drawn into the channels of socialist
construction through the development in the first instance of the most simple
forms of co-operation in the sphere of sale, supply and credit, and the gradual
transition to co-operation in production, collective farms. Peasant co-operation
must proceed with the most careful observance of the voluntary principle.
Organisation of the peasant farms into co-operatives proved to be the only
correct form of combining the personal interests of the peasants with the
interests of the State as a whole, of drawing the main mass of the peasantry
into the building of socialism under the leadership of the working class.
In bourgeois society, where the means of production belong to the
exploiters, co-operation is a capitalist form of economy. In agricultural co-
operation under capitalism the bourgeoisie are economically predominant and
exploit the masses of the peasantry. In a social system where political power is
in the hands of the working people themselves, and the basic means of
production are the property of the proletarian State, co-operation is a Socialist
form of economy. A system of civilised co-operators, given the social
ownership of the means of production, with the class victory of the proletariat
over the bourgeoisie, is the system of Socialism. (Lenin On Cooperation,
Selected Works, 1950, English edition, vol. II, Pt. 2, p. 719.)
Basing himself on Lenins works, Stalin advanced and developed a
number of new propositions on the socialist transformation of agriculture.
In the multiform economy of the transitional period there is, on the one
hand, a large-scale socialist industry based on social ownership of the means of
production, and on the other hand the small-scale peasant economy based on
private ownership of the means of production. Large-scale industry is equipped
with modern techniques, while privately owned small-scale peasant agriculture
is based on primitive techniques and manual labour. Large-scale industry
develops at high speed, on the principle of extended reproduction, while small-
scale peasant economy not only fails in its mass to achieve extended
reproduction every year, but often has not the opportunity of achieving even
simple reproduction. Large-scale industry is centralised on a national economic
scale and is managed on a State plan, while small-scale peasant farming is
scattered and subject to the influence of uncontrolled market factors. Large-
scale socialist industry abolishes the capitalist elements, while small-scale
peasant farming gives birth to them constantly, and on a mass scale. The
Socialist State and the building of socialism cannot rest for any prolonged
period on two different foundationson the largest and most unified socialist
industry and on the most scattered and backward small commodity peasant
economy. In the final analysis, this would result in the disorganisation of the
entire national economy.
Thus there is inevitably, in the economy of the transitional period from
capitalism to socialism, a contradiction between large-scale socialist industry
on the one hand and small-scale peasant farming on the other. This
contradiction can only be resolved by the transition of the small-scale peasant
economy to large-scale socialist agriculture.

The development of socialist industry and the growth of the urban population in the
U.S.S.R. during the transitional period was accompanied by a rapid Increase in the demand for
agricultural produce. But agricultures speeds of development lagged far behind those of
industry. The main branch of agriculture, grain production, advanced at a particularly slow rate.
Small-scale peasant farming, which was the main supplier of marketed grain, had a semi-
consumer character and marketed only one-tenth of the gross grain harvest. Despite the fact
that by 1926 the sown area and the gross grain harvest had almost achieved pre-war level, the
marketed supply of grain was only half the 1913 level. Small-scale peasant farming was unable
to satisfy the growing demand for food supplies for the population and for raw materials for
industry.

There are two ways of creating a large-scale economy in agriculture, a

capitalist and a socialist way. The capitalist way means the emergence and
development of large-scale capitalist farms in agriculture, based on the
exploitation of hired labour. This is inevitably accompanied by the
impoverishment and ruin of the working masses of the peasantry. The socialist
way means the union of the small peasant farms in large-scale collective farms
equipped with modern techniques. This frees the peasantry from exploitation
and poverty and secures a steady improvement in their material and cultural
level. There is no third way.
The transition from small-scale individual peasant to large-scale socialist
farming cannot proceed spontaneously. Under capitalism the countryside
automatically follows the towns, since the capitalist economy in the towns and
the small-scale peasant economy in the countryside are at bottom kindred
forms of economy, based on private ownership of the means of production.
When there exists the dictatorship of the working class, the small-scale
peasant countryside cannot follow the socialist town in this way. Lenin spoke of
the commodity-capitalist tendency of the peasantry, in contrast to the socialist
tendency of the proletariat.
The socialist town leads the small-scale peasant countryside. Large-scale
socialist agricultural enterprises are organised. Industry equips the countryside
with modern machine techniques. At the same time, cadres who have
mastered the new techniques are trained. New productive forces develop in
agriculture, which do not correspond to the old production relations of small-
scale peasant farming. The law that the relations of production must
necessarily correspond to the nature of the productive forces determines the
need for new socialist relations of production in the countryside, to provide
scope for the development of the productive forces. Such relations of
production can only be created through the union of the small individual farms
into large-scale collective farms.
Achievement of the aim of socialist productionthe satisfaction of the
constantly growing requirements of societyrequires the creation of a large-
scale, highly productive socialist agriculture capable of supplying industry with
raw materials and the population with food. Consequently, collectivisation
represents the essential condition for fulfilling the requirements of the basic
economic law of socialism, for accomplishing the most important tasks of
building socialism and for satisfying the basic, vital interests of the peasantry.
The building of socialism meant the elimination of the disparity which had
arisen in the development of industry and agriculture, the creation alongside
large-scale industry of large-scale collectivised production in agriculture. This
reflected the requirements of the law of planned, proportional development of
the national economy.
Thus the gradual union of the small peasant farms into producer co-
operatives, equipped with modern techniques, is an objective necessity in the
transitional period from capitalism peasantry.
The Communist Party and the Soviet State recognised the historical
necessity for collectivisation. They rejected the capitalist path of agricultural
development as fatal to the cause of socialism and choose the socialist path.
This was reflected in the consistent policy of collectivising agriculture. The 15th
Congress of the C.P.S.U.(B) (1927) resolved:

It is necessary to regard as a priority, on the basis of the further co-

operative organisation of the peasantry, the gradual transition of the scattered
peasant farms on to the lines of large-scale production (collective working of
the land on the basis of intensification and mechanisation of agriculture), and
in every way to support and encourage the beginnings of socialised agricultural
labour. (The C.P.S.U. in Resolutions and Decisions if its Congresses,
Conferences and Central Committee Meetings, seventh Russian edition, Pt. 2,
p. 317.)
The history of socialist construction in the U.S.S.R. has demonstrated
that the path of productive co-operation of the peasant farms has fully justified
itself. In all countries with a more or less numerous class of small and middle
peasants, this is the only possible and expedient path for the victory of
socialism after the establishment of working-class power.

The Prerequisites of All-round Collectivisation

The execution of this gigantic and historic taskthe collectivisation of

millions of small peasant farmsrequired appropriate preparation. Whereas the
very development of capitalism had prepared the material conditions for the
socialist transformation of industry, in agriculture they had to be to a
considerable extent created during the transitional period.
The economic policy of the Communist Party and the Soviet State, up to
the all-round collectivisation of the countryside, was directed towards
supporting by all available means the poor and middle strata of the countryside
and restricting the exploiting tendencies of the rural bourgeoisie. The poor
peasantry, accounting for 35 per cent of the peasant population, was
completely freed from taxes. In its labour legislation, the Socialist State
carefully protected the interest of the poor peasantry and agricultural workers.
Land improvements in the poor and weak middle-peasant farms were provided
free, at the expense of the State. The State organised machine-hiring stations
which extended productive assistance, in the first instance, to the poor farms.
Money credits were given to the poor and middle peasants, and seed and
provision loans were provided on privileged terms. The State organisation of
scientific assistance, the supply of mineral fertilisers, the struggle against
drought, the execution of large irrigation works, etc., were of great importance
in promoting the prosperity of the peasant economy. At the same time the
Communist Party and the Soviet State were restricting and squeezing out the
rural capitalist elements through high taxation of the kulaks, diminishing the
extent of leased land and the use of hired labour, and prohibition of the
purchase and sale of land.
The fundamental task of building socialism in the countryside was, under
the leadership of the working class and relying on large-scale socialist industry
to lead the bulk of the peasantry from the old private property path on to the
new socialist collective farm path.
The nationalisation of the land in the U.S.S.R. freed the small peasant
from attachment to his plot of land due to private ownership, and thereby
facilitated the transition from small-scale peasant farming to large-scale
collective farming. The nationalisation of the land created favourable conditions
for organising large socialist farms in agriculture, since it made unnecessary
unproductive expenditure on land purchase and payment of rent.
The all-round development of socialist industry, as the key to the socialist
transformation of agriculture, was of decisive importance in paving the way for
collectivisation. In the very first years of industrialisation in the U.S.S.R.
factories were built for the production of tractors, combine harvesters and
other complex agricultural machines. During the first Five-Year Plan alone,
agriculture received 160,000 tractors (in terms of 15-h.p. units).
An industrial base was created for the supply of tractors, combine
harvesters and other agricultural machines to the countryside.
The mass movement of the peasantry along the collective farm path had
the way prepared for it by the development of agricultural co-operation. The
first stage in co-operation among peasant farms is the co-operative sale of
agricultural produce and supply of manufactured goods to the countryside, as
well as in the sphere of credits. Together with the specialised forms of
agricultural co-operation in dairying, flax growing and sugar-beet production,
credit arrangements, etc., industrial handicraft co-operation is of great
importance. These forms of co-operation play an important role in the
transition from individual peasant to large-scale social farming. They accustom
broad strata of the peasantry to the habit of collectively conducting economic
affairs. At this stage there is primarily a trade bond between socialist industry
and the peasant economy which is achieved through the expansion of State
and co-operative trade and the squeezing out of private capital from trade.
Thus the peasants are freed from exploitation by the traders and speculators.
An important role is prayed in this respect by the consumer co-operatives in
the countryside trading in consumer goods.
The system of contracts, as a form of organised trade turnover, is of
great importance in the relations of the State and the co-operative unions, and
is the simplest form of production bond between town and countryside. This
system is based on agreements whereby the State places orders with the co-
operative producers and the individual peasant farms for the production of
specified quantities of agricultural produce, supplies them with seeds and
implements of production, making it a condition that they should adopt the
best farming methods (drill sowing, use of selected seed, application of
fertilisers, etc.). It purchases their marketed output to supply the population
with food and industry with raw materials. This system is advantageous to both
parties, and directly links the co-operatives and individual peasant farms with
industry, without the intervention of private middlemen.
The highest form of peasant co-operation is the organisation of collective
undertakings-the collective farms, which means a transition to large-scale
socialised production. The collective farm is a voluntary productive co-operative
union of the peasants, based on social ownership of the means of production
and on collective labour, which excludes the exploitation of man by man.
The first collective farms, created soon after the socialist revolution,
played an important role in preparing mass collectivisation. The peasants
became convinced of the superiority of collective over individual forms of
farming by the example of these collective farms.
The predominant type of collective farm, before all-round collectivisation,
was the association for joint cultivation of the land (T.O.Z.). In these, land-use
and labour were socialised, but the draught cattle and agricultural equipment
remained the private property of the peasant. With the development of mass
collectivisation the T.O.Z. proved to belong already to a past stage. In a
number of districts there were agricultural communes in which not only all the
means of production but also the personal family plot of the collective farmer
were socialised. These communes proved impracticable, as they arose in
conditions of undeveloped techniques and insufficiency of products. They
practised egalitarian distribution of consumer products. The communes, by
decision of the peasants themselves, were subsequently converted into
agricultural artels.
The agricultural artel became the basis and main form of collective farm. It is a
form of collective undertaking built on the socialisation of the main means of
production of the peasants and on their collective labour, while the collective
farmers retain, as their personal property, a subsidiary enterprise on a scale
laid down by the Statute of the Agricultural Artel.
The leading role of large-scale socialist industry in collectivisation is
exercised through the machine and tractor stations (M.T.S.). These are State
socialist enterprises in agriculture, disposing of the tractors, combine
harvesters and other complex agricultural machines, and servicing the
collective farms on a contractual basis. The M. T.S. is the industrial basis of
large-scale collective agriculture. The M. T.S. ensures the correct combination
of the voluntary effort of the collective farm masses in building and developing
their collective farms with the guidance and assistance of the Socialist State.
The machine and tractor stations are a powerful instrument for the
socialist reconstruction of agriculture, and a chief means of establishing co-
operation in production between industry and agriculture. This. co-operation
consists in large-scale socialist industry supplying agriculture with machinery
and other means of production, equipping it with modern, perfected
techniques. Large-scale State agricultural enterprises organised by the Socialist
State on, a part of the former landowners estates, as well as on free lands of
the State reserve, play an important part in the socialist transformation of
agriculture. The State farms (sovkhozy) were already being set up in the
U.S.S.R. in the first year after the socialist revolution. A State farm is a large-
scale socialist agricultural enterprise in which the means of production and all
the produce belong to the State. The State farms are one of the most
important sources of foodstuffs and raw materials at the disposal of the State.
As highly mechanised and highly productive socialist enterprises, they enabled
the peasants to convince themselves of the advantages of large-scale socialist
farming, providing them with assistance in the form of tractors, graded seed
and pedigree cattle. They facilitated the turn of the peasant masses towards
socialism through collectivisation.
The collective farm system arose with the financial and organisational
support of the working class. The Soviet State expended enormous sums on
financing the building of collective and State farms. In the early years of the
mass collective farm movement, the best Party workers and tens of thousands
of leading workmen were directed into the countryside and gave great help to
the peasants in organising collective farms.
The work of the Communist Party in the political education of the peasant
masses played an important part in preparing the peasantry far the transition
to collectivisation.
The turn of the bulk of the peasantry towards collectivisation required an
implacable class struggle against the kulaks. The kulak opposition to the policy
of the Soviet Government in the countryside grew particularly strong in 1927-
8, when the Soviet Union was experiencing grain difficulties. The kulaks
organised sabotage of State grain purchases, committed terrorist acts against
collective farmers, Party and Soviet workers, and set fire to collective farms
and State granaries. The policy of decisive struggle against the kulaks and the
defence of the interest of the working peasantry rallied the poor and middle
peasant masses around the Communist Party and the Soviet State.

All-round Collectivisation and the Elimination of the Kulaks

as a Class

The decisive turn of the peasantry towards the collective farms in the
U.S.S.R., dates from the second half of 1929. By this time the economic and
political prerequisites far the collectivisation of agriculture had been created.
Into the collective farms came the middle peasant, that is the basic mass of
the peasantry. The peasantry were entering the collective farms no longer in
separate groups but by whole villages and districts. The process of all-round
collectivisation in the Soviet countryside had commenced.
Before all-round collectivisation, the Communist Party and Soviet State
had carried out a policy of restricting and squeezing out the rural capitalist
elements. But this policy did not abolish the economic basis of the kulak
element or eliminate them as a class. Such a policy was necessary until the
conditions far all-round collectivisation had been created, and until there was a
broad network of collective and State farms in the countryside which could
replace capitalist grain-production by socialist production.

In 1926-7 the kulaks produced 10 million tons of grain and sold over 2.03 million tons
outside the countryside, while the State and collective farms produced 1.33 million tons and
marketed just over half a million tons. The situation was fundamentally changed in 1929, when
State and collective farms produced no less than 6.5 million tons and marketed nearly 2.1
million tons, that is, they outdistanced kulak production of marketed grain.

The great turn of the bulk of the peasant masses to socialism meant a
fundamental shift of the class forces of the country, in favour of socialism and
against capitalism. This enabled the Communist Party and the Socialist State to
move forward from the old policy of restricting and squeezing out the capitalist
elements in the countryside to a new policy, the policy of eliminating the
kulaks as a class an the basis of all-round collectivisation.
All-round collectivisation was achieved in the course of a mass struggle
of the peasant against the kulaks, who offered furious resistance to
collectivisation. The working class, leading the main mass of the peasantry,
took the last capitalist stronghold in the country by storm so as to defeat the
kulaks in open battle, before the eyes of the entire peasantry, and to convince
the peasant masses of the weakness of the capitalist elements. With all-round
collectivisation the land around the villages passed into the use of the collective
farms. But as a considerable part of this land had been held by the kulaks, the
peasants, in organising the collective farms, took from the kulaks land, cattle
and equipment and expropriated them. The Soviet Government repealed the
laws permitting leasing of land and hiring of labour. Thus the eliminating of the
kulaks as a class was an essential constituent element of all-round collec-
tivisation.
Collectivisation was carried out with strict adherence to the Leninist
principles far the building of collective farms: voluntary entry of the peasants
into the collective farms, allowance far the differences in economic and cultural
levels indifferent parts of the country and the inadmissibility of side-stepping
the agricultural artel, as the main farm of collective farm construction, in
favour of the commune.
All-round collectivisation and the elimination of the kulaks as a class
which was based upon it, was a profound revolution, a leap from an old
qualitative state of society to a new qualitative state, equivalent in its
consequences to the revolution of October 1917. (History of the C.P.S.U.(B).
Short Course, English edition, p. 305.).
This was a revolution which abolished the old bourgeois system of
individual-peasant farming and created a new socialist collective farm system.
A unique feature of this revolution was the fact that it was carried out from
above, on the initiative of the State, with direct support from below, from the
millions of peasants struggling against kulak bondage for a free collective farm
life.
This revolution solved a number of fundamental problems of socialist
construction.
In the first place, it eliminated the most numerous exploiting class in the
country, the kulaks. The elimination of the kulaks as a class, on the basis of all-
round collectivisation, was a decisive step in abolishing the exploiting classes.
The question who will beat whom? had been answered not only in the towns
but also in the countrysideand in favour of socialism. The last sources for the
restoration of capitalism in the U.S.S.R. had been abolished.
In the second place, it turned the most numerous toiling class in the
country, the peasants, from individual farming which gives birth to capitalism
to the path of socially-owned, collective, socialist economy. In this way the
most difficult historic problem of the proletarian revolution was solved.
In the third place it gave Soviet power a socialist basis in agriculture, in
the most extensive and vitally necessary, and yet most backward, branch of
the national economy. Agriculture began to develop on a common basis with
industry, that of social ownership of the means of production. In this way one
of the most profound contradictions bf the transitional period, the contradiction
between large-scale socialist industry and small-scale individual peasant
farming, was resolved, and the basis for the antithesis between town and
country was abolished. The old capitalist and petty-bourgeois production-
relations in the countryside, which were a fetter on the productive forces, were
replaced by new socialist relations of production. Thanks to this, the productive
forces in agriculture acquired scope for their development.

The Agricultural Artel as the Main Form of the

Collective Farm

The experience of building collective farms in the U.S.S.R. has shown

that the agricultural artel, of all forms of collective farm, makes possible the
development of the productive forces of socialist agriculture to the greatest
extent. The agricultural artel properly combines the personal interests of the
collective farmers with the social interests of the collective farm. The artel
successfully adapts personal everyday interests to social interests, and in this
way facilitates the training of the former individual farmers in a spirit of
collectivism. In accordance with the Statute of the Agricultural Artel the
following items are socialised: agricultural equipment, draught cattle, seed
stocks, fodder resources for the socialised cattle, farm buildings necessary for
the artel economy and all plant for the processing of products. In the
agricultural artel such important branches of agriculture as grain farming and
cultivation of industrial crops are completely socialised. Care of socialised
livestock is organised in livestock departments of the collective farms. Highly-
developed artels also organise large-scale socialised production of potatoes and
vegetables, as well as horticulture, viticulture, etc.
In the agricultural artel there are not socialised, but remain the personal
property of the collective farm household, dwellings, a fixed number of
productive cattle, poultry, farm buildings required for quartering the privately
owned cattle, and small agricultural implements for the individual subsidiary
plot. The artel management supplies horses from the socialised livestock, in
return for payment, for the personal requirements of its members. The
collective farmers receive their main income from the socially-owned economy
of the collective farms, which is their main and most important part.

In accordance with the Statute of the Agricultural Artel, each collective farm household
can have as its personal property: in the grain and industrial-crop areasa cow, up to two
calves, one sow with its young or, with the permission of the collective farm management, two
sows with their young, up to ten sheep and goats; in the agricultural areas with well-developed
livestock raisingtwo or three cows and their young, two or three sows and their young,
twenty to twenty-five sheep and goats; in non-nomadic or semi-nomadic livestock raising
areas where livestock raising is the most important branch of economyfour or five cows and
their young, thirty to forty sheep and goats, two or three sows with their young, and also one
horse or one milking mare each, or alternatively two camels, two donkeys or two mules each;
in nomadic livestock areaseight to ten cows and their young, 100 to 150 sheep. and goats,
up to ten horses and five to eight camels. In addition, an unlimited quantity of poultry and
rabbits, as well as up to twenty bee-hives, are allowed in all areas.
An allotment of 0.62 to 1.25 acres is allocated for the personal use of each collective
farm household for its subsidiary economy, out of the socialised land. In some areas the
allotment is up to 2.5 acres depending on the particular features of the district.

The period of agricultural reorganisation in the U.S.S.R. was completed

by the end of the first Five-Year Plan. By 1932 the collective farms embraced
more than 60 per cent of peasant farms and more than 75 per cent of their
sown area. But the kulaks, routed in open battle, were not yet finished.
Penetrating the collective farms by deceit, the kulaks strove to disrupt them
from within by various wrecking methods. The Communist Party and the Soviet
State put before themselves the organisational and economic strengthening of
the collective farms, as the main task of collective farm construction. This
meant strengthening the Party and State guidance of the collective farms,
cleansing them of the kulak dements which had infiltrated into them, protecting
socialist property and improving the organisation and discipline of collective
labour.
The victory of the collective farm system was won in decisive struggle
against the exploiting classes and their Trotskyist and Bukharinist agents, who
defended the kulaks in every possible way, combated the creation of collective
and State farms and demanded the dissolution and abolition of the existing
collective and State farms. The Communist Party routed the Trotskyist line of
the exploitation and forcible expropriation of the peasantry by means of high
prices for industrial goods and excessive taxes, and also the right-opportunist
Bukharinist theory of the peaceful growing of the kulaks into socialism, and of
letting things develop themselves in economic construction.

The Transformation of the U.S.S.R. from a Country of Small

Peasant Holdings into a Country with the Largest-scale
Agriculture in the World and a Highly Mechanised one

Collectivisation was completed by the end of the second Five-Year Plan.

The method of collectivisation adopted proved to be by far the most
progressive. It enabled the entire country to be covered in the course of a few
years with large-scale collective farms capable of applying modern techniques,
making use of all agronomic achievements and providing the country with a
greater marketed surplus. It opened the way for a big rise in the living
standards of the peasantry.
The U.S.S.R. had created and consolidated the largest scale agriculture in
the world in the form of a comprehensive system of collective farms, M. T.S.
and State farms. These represent the new socialist mode of production in
agriculture.

In place of the 25 million peasant farms in the U.S.S.R. on the eve of all-round
collectivisation, by mid-1938 there were 242,400 collective farms (not counting fishery and
handicraft collectives). Each collective farm had an average of 3,820 acres of agricultural land,
which included 1,200 acres of sowings. In the U.S.A. in 1940, only 1.6 per cent of farms had a
land area of 1,000 acres or more.

The collective farm system demonstrated its indisputable superiority over

the capitalist system of agriculture and over small-scale peasant farming.

The great importance of the collective farms lies precisely in that they
represent the principal basis for the employment of machinery and tractors in
agriculture, that they constitute the principal base for remoulding the peasant,
for changing his mentality in the spirit of socialism. (Stalin, Problems of
Agrarian Policy in the U.S.S.R., Leninism, 1941, English edition, p. 322.)

During the first two Five-Year Plans a genuine technical revolution took
place in agriculture, as a result of which a solid material and productive base
for socialism in the countryside was created. By the beginning of the third Five-
Year Plan, the agriculture of the U.S.S.R. was the largest-scale agriculture in
the world and highly mechanised.
While the use of machinery in agriculture is inevitably accompanied
under capitalism by the ruin of the small peasants, mechanisation of socialist
agriculture, based on collective labour, eases the toil of the peasant and brings
about an improvement in his living standards.

In 1940 agriculture in the U.S.S.R. had 684,000 tractors (in 15-h.p. units), 182,000
combine harvesters and 228,000 lorries. In 1930 there were 158 M.T.S. and by the end of
1940, 7,069. Mechanisation in collective farm work had reached the following levels by 1940:
turning of fallow land 83 per cent, spring ploughing 71 per cent; spring and winter sowing 52-3
per cent; harvesting with grain combines 43 per cent.

The collective farm system ensured a considerable rise in agricultural

production and a high marketable surplus. This was very important for the
supply of the country with foodstuffs and raw materials. Gross agricultural
production in the U.S.S.R. in 1940 was almost double the pre-revolutionary
level (1913). The marketed surplus of collective and State farm grain
production reached 40 per cent of gross production by 1938, compared with 26
per cent in 1913. Moreover, the marketed surplus of grain of the poor and
middle peasant farms had amounted to only 14.7 per cent in pre-revolutionary
times. The collective and State farms have enormous possibilities for achieving
a steady growth of production. They do not suffer from sales crises, since the
systematic growth of the living standards of the people is accompanied by a
constantly growing demand for agricultural produce.
The victory of the collective farm system offered the Soviet peasantry a
prosperous and cultured life. The collective farm system destroyed the
possibility of differentiation of the peasantry: poverty and beggary in the
countryside were no longer possible. Tens of millions of poor peasants were
assured of their livelihood by entering the collective farms. Thanks to the
collective farms, there were no longer peasant farms without horses, cows or
implements. The personal income of the collective farmers from the socially-
owned economy of the collective farms and from their individual subsidiary
plots increased 2.7 fold between 1932 and 1937 alone.
The victory of the collective farm system made even stronger the friendly
alliance of the workers and peasants. The collective farm peasantry became a
firm pillar of Soviet power in the countryside. Now, no longer the working class
alone but also the peasantry had began to base its existence on social or
socia1ist ownership of the means of production.
The experience of building collective farms in the U.S.S.R. enormously
facilitates the task of the socialist transformation of agriculture in other
countries moving from capitalism to socialism. At the same time the particular
historical development of different countries in the transitional period from
capitalism to socialism determines the precise preparatory conditions and the
forms and methods of collectivisation of agriculture in each country. Thus in the
countries of peoples democracy, as distinct from the U.S.S.R. where the whole
of the land is nationalised, private peasant ownership of the land is retained for
a certain time while co-operation of the peasant farms is being developed. This
is the reason for the variations in forms of organisation and in the operation of
the producer co-operatives in the countryside. In those countries productive
co-operatives predominate, in which the distribution of incomes takes place not
only according to the quality and quantity of work done, but also according to
the size of the area of land transferred to the co-operative and remaining in
the private possession of the peasant member of the co-operative. These co-
operatives are a lower form of socialist farming compared to the agricultural
artel, where the incomes received by the collective farmer from the socialised
farm are distributed only according to work done.
However, no matter how important the differences in conditions, forms
and methods of carrying out the socialist transformation of agriculture in
different countries, the basic principles of Lenins co-operative plan, which have
been tested by the experience of collective farm construction in the U.S.S.R.,
are common to all countries making that transformation.

BRIEF CONCLUSIONS
(1) Collectivisation of agriculture is an essential condition for building
socialism. The essence of collectivisation is the gradual and voluntary union of
the peasant farms in producer co-operatives. Collectivisation means the
transition from small-scale, individual, backward private farming to large-scale
socialist farming equipped with modern machine techniques. Collectivisation
corresponds to the vital interests of the peasantry and all the working people.
(2) The most important prerequisites for all-round collectivisation are:
the socialist industrialisation of the country, the development of agricultural co-
operation, the experience of the first collective and State farms, which
demonstrate to the peasantry the superiority of large-scale socialist farming,
the creation of machine and tractor stations, and a decisive struggle against
the kulaks.
(3) All-round collectivisation, and with it the elimination of the kulaks as
a class, which was carried out under the leadership of the Communist Party
and the Soviet State, was a most profound revolutionary transformation
involving the transition from the bourgeois individual-peasant system to a new
socialist collective farm system. This revolution eliminated the most numerous
exploiting classthe kulaksand turned the most numerous toiling classthe
peasantryfrom the capitalist to the socialist path of development. It created a
firm socialist base for the Soviet State in agriculture.
(4) With the victory of the collective farm system, the Soviet Union was
transformed from a country of small peasant farming to a country with the
largest-scale agriculture in the world and a highly mechanised one. The
productive forces of agriculture acquired scope for their development. The
Soviet peasantry escaped for ever from exploitation, poverty and beggary.
were abolished in the countryside, and conditions for an uninterrupted
improvement in the material and cultural life of the collective farm peasantry
were created. The friendly alliance of the workers and peasants became
strong.
 CHAPTER XXVI

THE VICTORY OF SOCIALISM IN THE U.S.S.R.

The Consolidation of the Socialist Mode of Production

The successes of socialist industrialisation of the U.S.S.R. and

collectivisation of agriculture brought about a fundamental change in the
balance of the types of economic structure and class forces in the U.S.S.R., in
favour of socialism and to the detriment of capitalism. Up to the second half of
1929 the decisive onslaught against the capitalist elements had taken place
primarily in the towns. On passing to all-round collectivisation and the
elimination of the kulaks as a class, this onslaught embraced the countryside,
too, thereby acquiring a universal character. The general advance of socialism
along the whole front had commenced. As a result of the swing of the bulk of
the peasant masses towards socialism, the capitalist form of economy was
deprived of its base in the shape of small commodity production and began to
perish. By 1930 the socialist sector already held the levers of the development
of the entire national economy in its hands. It then not only occupied com-
pletely the dominating position in industry but also began to play the decisive
role in agriculture. This was evidence that the U.S.S.R. had entered the period
of socialism.
Entry into the period of socialism did not yet mean the end of the
transitional period, since the task of building a socialist society had not been
fully accomplished. But this was already the last stage of the transitional
period. At the beginning of N.E.P. there was some revival of capitalism, but
now the last stage of N.E.P. had commencedthe stage of the complete
elimination of the capitalist element in the country.
The advance of socialism along the whole front was accompanied by a
sharpening of the class struggle, in the course of overcoming enormous
difficulties. These difficulties were connected with the fundamental
reconstruction of industry and agriculture and with the technical reorganisation
of the entire national economy. Reconstruction in agriculture was impossible
without the simultaneous reorganisation of the old economic structure, without
collectivisation of the peasant farms and without uprooting capitalism in the
countryside. The advance of socialism inevitably evoked the desperate
resistance of the dying .exploiting classes who undertook wrecking, sabotage;
diversions and terror with the support of the capitalist environment. The
difficulties of socialist construction differ fundamentally from those inherent in
a capitalist economy. Crises and unemployment, which cannot be overcome
within the framework of capitalism, are inherent in capitalist economy. The
difficulties of socialist construction are those of growth, upsurge and advance,
and they accordingly contain within themselves the possibility of being
surmounted.
With the completion of the first Five-Year Plan in the U.S.S.R. the
foundations of a socialist economy, in the form of socialist industry and large-
scale collective agriculture equipped with modern techniques, had been laid.
The capitalist elements in industry had been eliminated. Collectivisation in the
principal agricultural districts of the country had in the main been carried out,
and the kulaks had been routed although not yet finished with. The transition
to Soviet tradetrade without capitalistshad been completed. Private trade
had been completely squeezed out by State, co-operative and collective farm
trade.
At the beginning of the second Five-Year Plan the U.S.S.R. ceased to
have a mixed economy. Of the five economic sectors in the national economy,
threethe private economy of capitalism, State capitalism and patriarchal
economyno longer existed. The small commodity sector had been relegated
to a secondary position, and the socialist sector had become the completely
predominant and only commanding force in the entire national economy, This
meant that the Soviet Government was now based, both in the town and in the
countryside, on socialist foundations.
In the second Five-Year Plan the technical reconstruction of the entire
national economy was completed. The U.S.S.R. became an economically
independent country providing its economy and its defence requirements with
the necessary technical equipment, Numerous cadres, successfully mastering
the new techniques, had developed in all branches of the national economy.

As a result of the successful fulfilment of the second Five-Year Plan

... the main historic task of the second Five- Year Planthe final
elimination of all exploiting classes, of all the causes giving rise to the
exploitation of man by man and the division of society into exploiters and
exploited-was accomplished. The most difficult task of the socialist
revolution has been carried out the collectivisation of agriculture has
been completed and the collective farm system finally consolidated.
(The C.P.S.U. in Resolutions and Decisions of its Congresses,
Conferences and Central Committee Meetings, seventh Russian edition,
Pt. 2, p. 879.)

With the completion of collectivisation capitalism had been uprooted from

the economy. The differentiation of the peasantry and the rebirth of capitalist
elements had ceased.
The main contradiction of the transitional periodthe contradictions
between growing socialism and the overthrown, but still at the outset strong,
capitalism, with its basis in small commodity productionhad been overcome.
The question who will beat whom? had been decided in favour of socialism.
The purpose of N.E.P., the victory of the socialist forms of economy, had been
achieved, Lenin has said that N.E.P. was being introduced in earnest and for a
long time, but not for ever, and that N.E.P. Russia would become Socialist
Russia. Lenins scientific foresight had been fully vindicated. The victory of
socialism denoted the end of the transitional period, the end of N.E.P.

By 1936, socialist forms of economy accounted for 98.7 per cent of all the means of
production, including 99.95 per cent in industry and 96.3 per cent in agriculture. Between
1923-4 and 1936 the share of the socialist forms of economy had increased as follows: in gross
industrial production from 76.3 to 99.8 per cent, in gross agricultural production (including the
personal subsidiary economy of the collective farmers) from 1.5 to 97.7 per cent, in retail trade
turnover from 43 to 100 per cent and in the national income from 35 per cent in 1924-5 to
99.1 per cent in 1936.

Thus, as a result of the transitional period in the U.S.S.R., the victory of

socialism was ensured, This was made possible because there had been found
in the Soviet Union such a social force as the alliance of the working class and
the peasantry, which united the overwhelming majority of society. The working
class in alliance with the peasantry used the law of the necessary
correspondence of production relations to the character of the productive
forces for the purpose of overthrowing the old bourgeois relations of production
and creating new socialist relations of production throughout the national
economy. The resistance of the bourgeoisie, whose interests ran contrary to
this law, was broken.
During the transitional period in the U.S.S.R. the most progressive of all
modes of production which have so far existed in history was consolidated. This
was the socialist mode of production. The new powerful productive forces of
industry and agriculture were developed. Thereby the material conditions for
the complete victory of socialist production-relations and for their consolidation
throughout the national economy had been created. In turn, socialist relations
of production, victorious in both town and countryside, opened a wide field for
the development of the productive forces, and secured the necessary
conditions for the uninterrupted and rapid growth of production. The building of
socialism was the only way to eliminate the age-long technical and economic
backwardness of Russia, to save the country from foreign bondage and. ensure
its national independence. In the shortest possible period history, the U.S.S.R.
had become a mighty industrial and collective farm Power. The working class,
the working people of the U.S.S.R., under the leadership of the Communist
Party, had built a socialist society and translated into reality the hopes of many
generations of labouring people.
Socialism is a system based on social ownership of the means of
production in its two formsState (public) and co-operative or collective farm
property. In this system there is no exploitation of man by man; The national
economy is developed in a, planned way, for the purpose of completely
satisfying the growing needs of the working people by means of an
uninterrupted growth of production on the basis of advanced techniques and
realisation of the principle of distribution according to work.
The victory of socialism in the U.S.S.R. was the most profound
revolutionary transformation in the history of mankind.

Changes in the Class Structure of Society

The construction of a socialist economy in the U.S.S.R. brought about radical
changes in the class structure of society. Under socialism there are no
exploiting classes. Socialist society consists of two friendly toiling classesthe
working class and the peasantry, and also the intelligentsia who are completely
rooted in these classes.

In pre-revolutionary Russia, in 1913, manual and clerical workers accounted for 16.7
per cent of the population, small commodity producers (peasants and handicraftsmen) 65.1 per
cent, exploiting classes 15.9 per cent (including kulaks 12.3 per cent), and others (students,
pensioners, the army, etc.) 2.3 per cent.
By 1937, in the U.S.S.R. manual and clerical workers accounted for 34.7 per cent of the
population, collective farm peasantry and co-operative handicraftsmen 55.5 per cent, students,
pensioners, the army and others, 4.2 per cent. Individual peasant farmers and handicraftsmen
not working in co-operatives, that is, self-employed persons in small commodity production,
accounted for only 5.6 per cent of the population. The exploiting classes, the landowners and
bourgeoisie, had been eliminated during the transitional period.

The victory of socialism fundamentally changed the character and

position of the working class, the peasantry and the intelligentsia.
The working class had ceased to be a class deprived of the means of
production, which sold its labour-power and was exploited by the capitalists. It
was converted into a completely new class, which had never existed in history
up till then, owning the means of production in common with the whole of the
people, and freed from exploitation. The life of the working class in the
U.S.S.R. is based on State (public) ownership and on socialist labour. It is the
advanced class of society and the leading force in its development. Accordingly,
the State guidance of society (the dictatorship) belongs in the U.S.S.R., to the
working class.
The peasantry from being a class of small scattered producers, whose life
was based on private property, personal labour and primitive techniques,
exploited by landowners, kulaks, merchants and usurers, had become a
completely new class, the like of which history had not known. The peasantry
in the U.S.S.R. has been freed from exploitation. Its work and its fortunes are
bound up with social, co-operative and collective farm property, collective
labour and modern techniques. The peasantry, in close alliance with the
working class and under its leadership, participates in the administration of the
Soviet State, which is a Socialist State of workers and peasants.
The victory of socialism in the U.S.S.R. completely ended the exploitation
of the countryside by the town and the ruin of the peasantry. In this way the
age-long antithesis of town and country was abolished. The town, which under
capitalism was the centre of exploitation of the countryside, became under
socialism a centre of economic, political and cultural assistance to the
countryside. The vast help extended to the peasantry by the socialist town in
eliminating the landowners and kulaks, and in the systematic supplying of the
peasantry and collective farms with tractors and other machines, strengthened
the alliance of the working class and peasantry.
With the aid of the socialist town, the countryside acquired new powerful
productive forces. The bond between industry and agriculture became ever
stronger. The contradictory interests of town and countryside disappeared. Not
even a trace remained of the past distrust and even hatred of the countryside
for the town. Both the town and the country began to develop on a socialist
basis. The interests of the workers and peasants have common ground in
strengthening the socialist system and building communism.
A new intelligentsia had been born in the U.S.S.R. joined by that section
of the old intelligentsia which united itself with the people after the revolution.
In bourgeois society, the intelligentsia is mainly drawn from the propertied
classes. It serves the capitalists, is exploited by them and itself helps to exploit
the workers and peasants. Under capitalism a considerable section of the
intelligentsia is either compelled to engage in unskilled work or falls into the
ranks of the unemployed. In the U.S.S.R. by far the greater part of the
intelligentsia comes from the working class and the peasantry. The Soviet
intelligentsia does not know exploitation. It serves the working people and the
cause of socialism, and has every opportunity for the fruitful employment of its
knowledge. Under socialism the intelligentsia is, together with the working
class and the peasantry, an equal member of society, actively participating in
the administration of the country. In 1937 the Soviet intelligentsia numbered
9.6 million people, and when the families of the intelligentsia are included, it
accounted for approximately 13-14 per cent of the population of the U.S.S.R.
With the victory of socialism in the U.S.S.R., the age-long antithesis of
mental and physical labour was done away with. The conditions in which a
considerable section of the workers by brain helped the ruling classes to exploit
the manual workers, were ended. Under socialism the workers and heads of
enterprises are a single working collective, interested in the growth of
production. The monopoly of education held by the propertied classes has been
abolished. Science is used in the interest of the entire people, and education is
a possession of the workers and peasants.
The victory of socialism created all the necessary conditions for the
masses of the people to lead a prosperous cultured life. In accordance with the
basic economic law of socialism the living standards of the working class, the
peasantry and the intelligentsia, were considerably raised during the
transitional period. Unemployment and want vanished. In the countryside,
propertyless peasants no longer existed. The real wages of manual and clerical
workers went up, as also did the real income of the peasantry. A cultural
revolution was carried out in the country. With the completion of the first two
Five-Year Plans universal compulsory elementary education in the languages of
the nationalities of the U.S.S.R. was achieved. The network of educational
institutions grew up on a huge scale throughout the country. The number of
specialists, in various branches of the economy and of culture, multiplied
several times over. Throughout the country the training of cadres developed on
a wide scale and there was a huge increase in the network of educational
institutions.

The national income of the U.S.S.R., which belongs entirely to the working people,
increased, in fixed prices, more than 4-fold by 1937 compared with 1913. Output of
consumer goods by large-scale industry increased by 1937 nearly 6-fold compared with 1913.
In the second Five-Year Plan alone, the real wages of manual and clerical workers were
doubled.
The number of pupils in elementary and secondary schools increased from 7.9 million in
1914 to 29.6 million in 1937, and the number of students in higher educational institutions
from 117,000 to 547,200. The print of books increased from 86,700,000 copies to 673,500,000
copies. Newspaper daily circulation increased from 2,700,000 to 36,200,000.

In accordance with the principles of the socialist system, Soviet power

put an end to the oppressed position of women. In the U.S.S.R. woman have in
practice, equal rights with man in all spheres of economic, cultural, social and
political life. Women receive equal pay for equal work. The victory of socialism
introduced millions of women to skilled work. During the Five-Year Plans a
great number of women rose to executive posts. A fundamental transformation
in the position-of women in the countryside took place with the victory of the
collective farms, which abolished the former inequality of women in the
individual peasant economy. Women acquired the opportunity to stand on an
equal footing with men and to occupy an honourable place in the social
economy of the collective farms. The victory of socialism emancipated women
from their semi-slave condition in a number of the national regions, where
feudal and patriarchal traditions still survived. The women of the national
regions together with the women of the entire country became active builders
of socialism.

In 1936, 42 per cent of the numbers accepted into higher educational institutions were
women, and 48 per cent of those accepted into technical colleges. The proportion of women
students in industrial higher educational institutions in 1935, was seven times higher than in
Germany, ten times higher than in Great Britain and twenty times higher than in Italy. The
number of women doctors in the U.S.S.R. in 1940 was forty times greater than in 1913.
Whereas in 1913, 9.7 per cent of the doctors were women, by 1940 the figure was about 60
per cent.

With the victory of socialism and the abolition of exploitation of man by

man, there ceased to exist in the U.S.S.R. antagonistic classes and.
irreconcilable class contradictions. Class relations in socialist society are
characterised by the indestructible friendship and comradely co-operation of
the working class, peasantry and intelligentsia. Class differences between the
working class and the peasantry and equally between these classes and the
intelligentsia are being gradually effaced. Capitalist society is rent by class and
national antagonisms which deprive it of stability. Socialist society, which does
not know class and national antagonisms, is distinguished by its monolithic and
stable character. The complete predominance in the U.S.S.R. of social
ownership and the socialist economic system provided the economic basis on
which such powerful motive forces of social development as the moral and
political unity of Soviet society, the friendship of the peoples of the U.S.S.R.
and Soviet patriotism developed. These driving forces interact to an enormous
extent on the economy, and accelerate its development.
The fundamental changes which took place in the socialist economy and
class structure of the U.S.S.R. were expressed in the State superstructure. The
Soviet State passed through two main phases of development. The first phase
relates to the period from the October Revolution up to the elimination of the
exploiting classes. The State in this period repressed the overthrown classes
and defended the country against attacks from outside. The State also
exercised economic, organisational, cultural and educational functions, but
these were not yet fully developed. In the second phase of development, the
Soviet State faced the task of organising a socialist economy throughout the
country and of eliminating the last remnants of the capitalist elements. The
function of repressing the exploiters disappeared, and its place was taken by
the protection of socialist property. The function of military defence of the
country from the capitalist environment remained. The creation of the socialist
basis ensured the full development of the economic, organisational, cultural
and educational functions of the machinery of State.
Marking the completion of the changes which, had taken place, a new
Constitution of the U.S.S.R. was adopted in 1936. This put the legislative seal
to the principles and basic foundations of socialism. It does not confine itself to
laying down the formal rights of citizens, but gives pride of place to the
effective guarantee of these rights. Thus the Constitution of the U.S.S.R. does
not simply proclaim the right of the working people to work, leisure, material
security in old age, and in case of sickness and disability, and to education. The
reality of these rights is ensured by the socialist planned system of national
economy, by the elimination of unemployment, the eight-hour working day,
annual paid holidays for workers and employees, social insurance for manual
and clerical workers at the expense of the State, provision for the working
people of a broad network of sanatoria and rest homes, State protection of the
interests of mother and child, universal compulsory elementary education, free
seven-year education, State stipends to students and other material benefits,
etc. Thus the victory of socialism in the U.S.S.R. created a firm economic base
which guaranteed the actual realisation of the rights of the working people.
This reflects the genuine socialist democracy of Soviet society and of the
Constitution of the U.S.S.R.

Elimination of the Economic Inequality of Nations

In abolishing every kind of exploitation, socialism also roots out the

causes which give rise to national oppression. The socialist system does away
with the political, economic and cultural inequality of nations and secures the
economic and cultural growth of all peoples without exception.

Whereas private property and capital inevitably disunite people,

foment national strife and intensify national oppression, collective
property and labour just as inevitably unite people, strike at the root of
national strife and abolish national oppression. The existence of
capitalism without national oppression is just as inconceivable as the
existence of socialism without the liberation of the oppressed nations,
without national freedom. (Stalin, The Immediate Tasks of the Party in
the National Question, Works, English edition, 1953, vol. v, p. 20.)

The political inequality of nations, and the system of national oppression

and colonial exploitation were abolished in the U.S.S.R. with the establishment
of the dictatorship of the proletariat. There remained the further task of wiping
out the economic inequality of the nationalities and of putting an end to the
economic and cultural backwardness inherited from the past, of a number of
peoples. This task could only be carried out on the basis of socialist
construction.
 Among the population of the national regions of Russia, about 25 million people were
living in a pre-capitalist stage of development, of whom 6 million people were cattle-breeding
tribesmen who had not yet passed over to agriculture or outlived the patriarchal-clan system.
It was necessary to help the peoples of the national regions to emancipate themselves from
numerous survivals of feudal and patriarchal society, to root out the remnants of the colonising
elements and to give these peoples the opportunity of building a socialist economy.

As has already been shown above, backward countries in throwing off the
yoke of imperialism are able, with the assistance of the advanced countries of
proletarian dictatorship, to move gradually on to the path of socialist
construction, omitting the stage of capitalist development. In the Soviet Union,
peoples of the formerly backward regions of Russia took such a path of non-
capitalist development. With the all-round assistance of the Russian and other
peoples of the U.S.S.R., the peoples of the national regions accomplished the
greatest leap forward from patriarchal and feudal forms of economy to
socialism, omitting the capitalist path of development. The development of the
peoples of Central Asia, some of the Transcaucasian peoples, a number of the
Northern nationalities, and others, took place in this way. The construction of
socialism in the U.S.S.R. was accompanied by the most careful consideration
for the special economic conditions, historical background, way of life and
culture, of each individual people.
In the U.S.S.R. the real economic and cultural inequality of the various
nationalities, the inequality between Central Russia, which was moving
forward, and the national regions which were lagging behind and which was
inherited from the bourgeois landowning system, was abolished. The former
national regions of Tsarist Russia were transformed from colonies and semi-
colonies into independent and developed States-Soviet Socialist Republics. In
the formerly backward national republics and regions, large-scale socialist
industry was created, the collective farm system was consolidated, numerous
national cadres of the working class (including skilled workers) were trained,
and a national intelligentsia grew up. The powerful economic advance of the
national regions was accompanied by a rapid growth of the living standards
and cultural level of the working people.

While there was a general high speed of industrial growth in the U.S.S.R., the industry
of the national republics grew with particular rapidity. In the U.S.S.R. as a whole, gross output
of large-scale industry had increased by 1940 almost 12-fold compared with 1913. In the
Kazakh S.S.R. it had increased 20-fold, in the Georgian S.S.R. 27-fold, in the Kirghiz S.S.R.
153-fold and in the Tadjik S.S.R. 308-fold.
Under Soviet power forty-eight nationalities acquired a written alphabet for the first
time. Before the revolution a large majority of the population of the national regions was
illiterate. As a result of the socialist revolution, the overwhelming majority of the population of
the national republics had already become literate by 1939. The number of pupils in
elementary and secondary schools had increased by 1940 as compared with 1914-15 as
follows: Azerbaidjan S.8.R. 9-fold, Armenian S.S.R. 9.4-fold, Kazakh S.S.R. 10.9-fold,
Turkmenian S.S.R. 35-fold, Kirghiz S.S.R. 47-fold, Uzbek S.S.R. 73-fold, and Tadjik S.S.R. 822-
fold.

The building of socialism fundamentally changes the nature of nations. As

a result of the revolutionary transformation of social relations, there appear in
place of the bourgeois nations, of which capitalist society consists, new socialist
nations, formed on the basis of the old bourgeois nations. Whereas capitalism
divides nations into classes and groups with contradictory interests, socialism
unites nations on the basis of social ownership and unity of interest. Each
socialist nation is monolithic, consisting of working people led by the working
class.
The victory of socialism strengthened the unity of economic and political
interests of the peoples of the U.S.S.R. and brought about a flowering of their
culturesnational in form, socialist in content.
The Soviet Union is a stable and vigorous multi-national State, based on
the brotherly co-operation of the peoples and a model of the solution of the
national question.

The U.S.S.R. Enters the Phase of the Completion of the

Building of Socialist Society and of Gradual Transition from
Socialism to Communism

With the victory of socialism, the U.S.S.R. entered a new period of its
development, that of the completion of the building of socialism and of gradual
transition from socialism to communism.
Communism is a social system in which there are no classes or class
distinctions, all the means of production are public property, the level of the
productive forces ensures an abundance of products and the guiding principle
of social life is from each according to his abilities, to each according to his
needs.
Socialism and communism are two phases of one and the same
communist social and economic formation. Socialism is the lower phase of the
communist formation, while communism is the more mature phase, the
highest phase of this formation. The development of socialism creates the
material production basis of communism, an abundance of products, and an
enormous rise in the living standards and cultural level of the people. Thus the
completion of the socialist stage of development of society means at the same
time the effecting of a gradual transition to communism. The whole people
the working class, the peasantry and the intelligentsiaare profoundly
interested in the creation of communist society, are active builders of
communism, which denotes the greatest material and cultural flowering of
society. Since under socialism there are no classes and social groups whose
interests run contrary to communism, the transition to communism takes place
gradually, without social revolution.
As a result of the pre-war Five-Year Plans, the Soviet Union overtook all
the other countries of Europe and occupied second place in the world as
regards total volume of industrial output. To create the material conditions for
the transition to communism it is necessary for the U.S.S.R. to catch up the
most highly developed capitalist countries as regards the extent of industrial
output per head of the population and achieve a further tremendous
development of the productive forces. The volume of industrial output,
compared with the size of the population of a country is an index of its
economic might. With the victory of socialism in the U.S.S.R., the task which
V.I. Lenin advanced and which was extensively dealt with in the works of J. V.
Stalinto overtake and surpass the chief capitalist countries in the economic
sense, i.e., as regards volume of industrial output per head of the population
has become an important, practical task. This task was defined by the
Eighteenth Congress of the Communist Party (1939) as the chief economic
task of the Soviet Union.
The third Five-Year Plan was an important stage on the road to
communism. During the first three and a half years (1938-June 1941) the
tasks of the third Five-Year Plan were successfully carried out. A new and
considerable growth of industry, and above all of heavy industry, was achieved,
together with a further strengthening and growth of agriculture.
The peaceful creative labour of the Soviet people in the building of
communism was interrupted in 1941 by the treacherous invasion of the
U.S.S.R. by Fascist Germany and its vassals.
The great Patriotic War of the Soviet Union (1941-5) was the most
terrible war in Russias history. The war confirmed that the U.S.S.R. possessed
the most stable and durable social and State structure in the world. The Soviet
system proved to be not only the best form of organisation for the economic
and cultural growth of a country in the years of peaceful construction, but also
the best form for mobilising the entire forces of the people to repulse the
enemy in time of war.
The powerful economic base for the active defence of the country, used
in wartime, had been created already during the pre-war Five-Year Plans as a
result of the policy of industrialisation and collectivisation.

In 1940 the U.S.S.R. produced 15 million tons of pig-iron, or almost 4 times more than
in 1913; 18,300,000 tons of steel, or 4 times more than in 1913; 166 million tons of coal, or
5 times more than in 1913; 31 million tons of oil, or 3 times more than in 1913;
38,300,000 tons of marketed grain, or 17 million tons more than in 1913; 2,700,000 tons of
cotton, or 3 times more than in 1913.

The socialist system enabled the U.S.S.R. to create in the shortest

possible time a well co-ordinated and rapidly-growing war economy. The
economic basis of the Soviet State was shown to be incomparably more
durable than the economy of the enemy States. Thanks to the superiority, of
planned socialist economy, the Soviet State, under unbelievably difficult
conditions resulting from the temporary loss of a number of important regions
of the country, was able simultaneously to carry out the maximum mobilisation
and the most effective use of its material, labour and financial resources. To
secure victory the Soviet State undertook on an extensive scale the
construction of new factories, thereby ensuring an intensive growth of
industrial output. Throughout the war, the quantity and quality of Soviet
armaments rapidly increased. Despite the temporary occupation by the enemy
of the most important agricultural districts, the collective and State farms
suppliedwithout any serious interruptionthe army and the country with
foodstuffs, and industry with raw materials. The collective farm system
survived the severe trials of war and demonstrated its vitality.
The working class, the peasantry and the intelligentsia, including Soviet
women and the youth, undertook enormous sacrifices and displayed
exceptional selflessness in labour. All-Union Socialist emulation yielded great
results. Thanks to the growth in the productivity of labour in the heavy and
above all in the defence industries, a considerable reduction in the costs of
production was achieved. This enabled arms production to be greatly
increased.
The moral and political unity of socialist society, the friendship of the
peoples and Soviet patriotism, aroused the mass heroism of the Soviet people,
at the front and in the rear. The Communist Party, guiding the defence of the
country, skilfully directed the entire forces of the people to the task of
defeating the enemy. The decisive superiority of socialism and the
indestructible stability of the Soviet rear, ensured to the Soviet Union the
economic and military victory which it won in association with its Allies in
mortal combat against imperialist Germany, which disposed of the resources of
many European countries, and against imperialist Japan. The Soviet people,
which bore the main brunt of the war, not only defended the freedom and
independence of their country and their socialist achievements, but also helped
liberate the peoples of Europe from the Hitlerite yoke.
The war inflicted enormous losses on the national economy of the
U.S.S.R.

The fascist invaders burned down and destroyed 1,710 towns, including a number of
large industrial and cultural centres, more than 70,000 villages and hamlets, 31,850 industrial
enterprises, ruined 98,000 collective farms, 1,876 State farms, 2,890 machine-tractor stations,
etc. The total losses which the fascist invaders caused to the national economy of the U.S.S.R.
and to Soviet citizens amounted to 679,000 million roubles at State valuation. During the war
years there was a considerable reduction of civil industrial output, and agricultural production
and transport suffered heavily.
Socialist society in the U.S.S.R. withstood all the trials of the exceptionally hard war.
This proved the stability of the Socialist relations of production that had been established, their
superiority over capitalist relations.

Any other State, even the largest capitalist State, suffering such losses,
would have been inescapably thrown back scores of years, and would have
been turned into a second-rate Power. But thanks to the advantages of the
socialist system, the U.S.S.R. successfully coped with the most difficult task of
overcoming the effects of the war. Having brought the war to a victorious
conclusion, the Soviet Union was able, in the course of a few years and with its
own resources, not only to reach the pre-war level of production, but even to
leave it far behind. The fourth Five- Year Plan (1946-50) was successfully
fulfilled. Its main tasks had been to restore the devastated areas of the
country, restore the pre-war level of industry and agriculture and subsequently
to surpass this level considerably.
The fourth Five-Year Plan for industry was fulfilled ahead of time.
The successful fulfilment of the fourth Five-Year Plan meant a big step
forward in the economic and cultural development of Soviet society.
The further advance to communism of the U.S.S.R. formed the task of
the fifth Five-Year Plan (1951-5) and of the decisions which the Communist
Party and the Soviet Government adopted during those years, decisions which
aimed at a new, powerful advance in industry and agriculture for the purpose
of obtaining a further increase in the standard of living and culture of the
Soviet people. The tasks for industry of the fifth Five-Year Plan were also
fulfilled ahead of schedule.
The victory of socialism in the U.S.S.R. was of enormous international
importance. It was a new and powerful blow to the world imperialist system,
and shook its foundations even further. The consolidation of socialism
demonstrated with full force the superiority of the socialist system of national
economy over the capitalist system. Capitalism required approximately one
hundred years, and feudalism about two hundred years to prove their
superiority over the preceding modes of production. The socialist economic
system demonstrated its indisputable superiority to capitalism already in the
years of the transitional period, that is, in less than twenty years. The
correctness of Marxism, as the revolutionary world-outlook of the working
class, the correctness of Lenins theory of socialist revolution, were confirmed.
This has fortified the belief of the working masses in the strength of the
working class and in the final victory of socialism throughout the world.

BRIEF CONCLUSIONS
(1) With the completion of the transitional period from capitalism to
socialism in the U.S.S.R., the capitalist elements were eliminated from every
sector of the economy. The socialist system became the sole system in the
national economy, and the economic basis of socialist society came into being.
The victory of socialism was reflected and given legislative force in the
Constitution of the U.S.S.R.the most democratic constitution in the world.
(2) Socialism is a system founded on social ownership of the means of
production in its two forms: State (public), and co-operative and collective
farm property. In this system there is no exploitation of man by man, the
national economy develops according to a plan, for the purpose of fully
satisfying the growing needs of the working people by means of an
uninterrupted growth of production, and the principle of distribution according
to work IS put into effect.
(3) Socialist society consists of two friendly classes, the working class
and the peasants, together with an intelligentsia which is thoroughly rooted in
these classes. The victory of socialism brought about a fundamental
improvement in the material and cultural position of the working people. It
eliminated the contradiction between town and country, between mental and
physical labour, put an end to the inequality of nations and gave rise to new
socialist nations.
(4) With the victory of socialism, the U.S.S.R. entered the period of the
completion of the building of socialist society and of the gradual transition from
socialism to communism. Thanks to the superiority of the socialist system, the
U.S.S.R. won economic and military victory in the great Patriotic War. After the
war, the Soviet Union restored the national economy in the shortest possible
time, achieved its further powerful advance and is now successfully continuing
along the road to communism. The victory of socialism in the U.S.S.R. is
internationally of historic importance. It has demonstrated in deeds the
superiority of socialism over capitalism.
B. THE SOCIALIST ECONOMIC SYSTEM
 CHAPTER XXVII

THE MATERIAL PRODUCTION BASIS

OF SOCIALISM
Main Features of the Material Production Basis of Socialism

The material production basis of socialism is large-scale machine

production in all branches of the national economy. This is based on the highest
technique and the labour of workers who have been freed from exploitation.
Socialist production is integrated by social ownership of the means of
production, and develops in a planned way in the interests of the whole of
society. Its development does not encounter those obstacles which are caused
by private ownership of the means of production.
Socialist production is the largest and most concentrated production.
Under socialism, large-scale production has undivided predominance in
agriculture as well as in industry, whereas under capitalism small-scale
individual peasant farmers are numerically predominant in agriculture.
Socialism is free from the contradictions and restrictions in the application of
machine techniques which are characteristic of capitalism.
In bourgeois society machinery is an instrument of exploitation and is
only introduced when it increases the profits of the capitalists by means of
economies in the wage bill. In socialist society machinery is used wherever it
brings about a saving of labour for society, lightens the labour of the workers
and peasants, and promotes an increase in the welfare of the people. In
socialist society there is no unemployment, consequently machines cannot be
the rival of the working people. Hence the working people eagerly welcome the
use of machines in industry.
As a result of the elimination of private ownership of the means of
production, all the achievements of modern science and technique become,
under socialism, the property of the whole of society. In seeking to satisfy the
constantly growing needs of the mass of the people, socialist production
requires uninterrupted development and perfection of techniques; old
techniques must be replaced by new, and they in turn by newer ones. Hence
the necessity for systematic work to produce, master and introduce into
industry new machinery, mechanisms, appliances and apparatus, new types of
material and advanced technology. The Socialist State, which concentrates in
its hands the basic means of production and accumulation, can make large-
scale capital investments in the national economy to ensure uninterrupted
technical progress, and can carry out capital construction on a large scale and
at a speed which is not possible for capitalism.
Socialism ensures the systematic introduction of modem machine
techniques in all branches of production, including agriculture.
In socialist society the position of the workers in production is
fundamentally changed. Freed from exploitation, the labour of the workers, the
collective farmers and the intelligentsia is the very foundation of socialist
society. The working people work for themselves, for society, and not for the
exploiters. They are therefore profoundly interested in perfecting production,
using the highest techniques and most efficiently utilising existing techniques.
At the same time socialism brings about a constant and rapid rise of the
general cultural level and technical skill of the workers. All this gives rise to the
creative activity of the working people in developing production, perfecting
techniques and improving technology and the organisation of labour.
In contrast to capitalism, socialism secures the uninterrupted and rapid
growth of the productive forces.

Socialist Industry

Socialist industry is a highly concentrated and technically advanced

industry, organised on the basis of social ownership. It plays a leading role in
the national economy, equipping all sectors of the economy with modem
techniques. This is achieved by the more rapid growth of the branches
producing the means of production, and a high level of development of the
engineering industry. Heavy industry is the comer-stone of socialist economy.
Industry plays a major role in securing the growth of national consumption.
The light and food industries, equipped with modem techniques, increase the
output of goods for the population from year to year.

The basic productive stocks of industry in the U.S.S.R. had grown to more than double
the 1940 level by 1954, and to 24 times the 1913 level. Gross production of large-scale
industry in 1954 had increased (in comparable prices) 35-fold compared to 1913. Compared
with 1940, total industrial production had increased more than 2.8-fold by 1954, and nearly 4-
fold in the engineering and metal-working industry. Production of various major branches of
heavy industry had risen between 1913 and 1954 in the following way: coal from 29 million
tons to 347 million tons, oil from 9 million tons to 59.3 million tons, steel from 4,200,000 tons
to 41,400,000 tons, cement from 1 million tons to 19 million tons, electricity output from 1.9
milliard kW/hrs. to 149 milliard kW/hrs.

Socialist industry is the most concentrated industry, in the world. Under

socialism, concentration of production is carried out in a planned way, and is
accompanied by a general advance of the national economy in the interests of
the whole of society. Under capitalism, on the contrary, concentration takes
place unplanned, and is accompanied by the ruin and destruction of small-scale
and middling enterprises and by the establishment of the domination of
monopolies.

We are a land of the most concentrated industry. This means that

we can build our industry on the basis of the best technique and thereby
secure an unprecedented productivity of labour, an unprecedented rate of
accumulation. (Stalin, The Tasks of Business Executives, Works, English
edition, 1954, vol. XIII, pp. 35-6.)

In the conditions of socialism the combination of production is

extensively developed. This enables raw materials and fuel supplies to be more
fully utilised, reduces transport overheads and speeds up the production
process.
 In 1940, 71 per cent of all workers, and 84 per cent of all output in the industry of the
U.S.S.R., were concentrated in enterprises with an annual output exceeding 5 million roubles in
value (m fixed 1926-7 prices). By 1954, these figures had risen to 80 percent of all workers
and 92 per cent of all industrial output.
Comparing data on the concentration of industry in the U.S.S.R. and in the U.S.A. (for
the sake of comparison, the classification according to the numbers of manual and clerical
workers is taken in both cases) it will be seen that in the manufacturing industries of the
U.S.S.R. in 1954, 64 per cent of all workers and 72 per cent of all industrial output were
concentrated in enterprises employing more than 1,000 workers; in the manufacturing
industries of the U.S.A. in 1952, 33 per cent of workers and about 36 per cent of industrial
output were concentrated in similar enterprises.

Owing to the fact that social ownership of the means of production

prevails in socialist society, especially favourable conditions have been created
for the application of specialisation and co-operation of industry.
Specialisation of industrial production is the concentration of enterprises
on a particular type of product, on separate parts and components or on
separate operations in the manufacture of a product. Specialisation reflects the
planned utilisation by society of the advantages of the division of labour
between different enterprises. It enables highly productive equipment to be
introduced as well as standardisation and mass production methods, which
secure a considerable rise in the productivity of labour.
The co-operation of industrial enterprises under socialism is the planned
establishment of permanent productive connections between enterprises which
participate jointly in the manufacture of a given product, but are economically
independent of one another. Co-operation of enterprises within the limits. of
the same economic region, which avoids long transport hauls, is of great
importance. Planned co-operation of enterprises is an important factor in the
growth of productivity of social labour. Socialist society sets itself the task of
extensively applying specialisation and co-operation as the most expedient
forms of the organisation of production.
The development of industry and its technical re-equipment are
accompanied by an increase in the numbers of the working class and a rise of
the cultural and technical level of the workers. The introduction of new
techniques increases the numbers and proportion of skilled workers and
decreases the numbers and proportion of unskilled, manual workers. The
number of engineering and technical workers is constantly on the increase.
In the U.S.S.R., a powerful and technically advanced transport system has
come into existence. As defined by Marx, transport is the fourth branch of
material production (after the extractive industries, manufacturing industries
and agriculture). It unites all branches of the national economy and the
economic regions of the country, playing an important role in the production
process and in the distribution of material wealth.
The function of transport increases in a planned socialist economy,
developing at a high rate and characterised by its many-sided links with
different branches of production and economic regions. In outlining the
function of the railways, Lenin pointed out that they are, one of the
manifestations of the very dear link between town and country, between
industry and agriculture, on which socialism is wholly based. (Lenin, Closing
remarks in the debate on. the Report on Immediate Tasks, April 29, 1918,
Works, Russian edition, vol. XXVII, p. 277.)
 The concentration of all forms of transport (rail, water, road and air) in
the hands of society, has eliminated competition between the various forms of
transport which is characteristic of capitalism. It has opened the way to the
planned co-ordination of their work. A unified transport system, on a country-
wide scale, has been created in the US.S.R. combining and planning all forms
of transport.
The unified transport system under socialism is built on the basis of
advanced transport technique: general introduction of the latest types of high-
capacity rolling-stock, mechanisation of loading and unloading operations,
perfection of the permanent way, etc.

The basic productive stocks of transport in the U.S.S.R. had increased 7-fold by 1954
compared with 1913. Freight turnover of all forms of transport had increased almost 9-fold,
and rail-freight turnover 13-fold, by 1954 compared with 1913.

Socialist Agriculture

The socialisation of the formerly scattered peasant economy, and the

setting-up of collective and State farms, made possible the widespread use of
machinery and the introduction of advanced agricultural technique: it created
the conditions for a big increase in agricultural production.
Socialist agriculture in the U.S.S.R. is based on social ownership and is
the largest in the world and highly mechanised. It consists of agricultural
enterprisescollective farms, machine and tractor stations and State farms.
The size of collective farms has been greatly increased as a result of the
amalgamation carried out in 1950-1 by decision of general meetings of the
collective farmers. On January I, 1955, the country had 89,000 collective
farms, instead of the 254,000 existing on January I, 1950. Whereas before the
amalgamation each collective farm had an average of 1,470 acres of plough
land, at the beginning of 1955 each had 4,870 acres of ploughland.
The machine and tractor stations have provided the collective farms with
the material and technical basis of large-scale machine production. The Soviet
State has created a complex system of machine and tractor stations in the
grain, flax, cotton, sugar-beet and market gardening areas. Special machine
and cattle-breeding stations have been set up for the mechanisation of arduous
work in cattle-breeding, and meadow amelioration stations for the
mechanisation of land drainage and improvement of meadows and pastures.
The first electrified machine and tractor stations have been set up, which use
electricity on a large scale in collective farming. All M.T.S., depending on the
type of production of the collective farm, have appropriate agricultural
machinery and qualified specialist personnel. On January I, 1955, there were
about 9,000 M.T.S. and other specialised stations in the U.S.S.R., servicing the
collective farms and providing a high level of mechanisation of agricultural
production.
In the agriculture of the U.S.S.R. an important role is played by large
State enterprisesthe State farms, which are equipped with the latest
techniques. On January I, 1955, there were more than 5,000 State farms
grain-growing, livestock (meat and dairy, pig, sheep, poultry and horse farms),
cotton-growing and other types of farms.
Socialist industry has equipped agriculture with advanced techniques. To
meet the peculiarities of agriculture there has been brought into being on the
basis of tractor-power a wide range of machinery for carrying out the main
agricultural operations for a series of major crops: ploughing, sowing, row-
tillage and harvesting.

On July 1, 1955, there were in Soviet agriculture more than 1,400,000 tractors (in
terms of 15 h.p. units), 350,000 grain harvesters, more than 450,000 lorries and many other
agricultural machines. The mechanisation of agricultural operations had as a consequence
increased.
The introduction of machinery has fundamentally altered the structure of power
resources in agriculture. In 1916 draught cattle accounted for 99.2 per cent, and mechanical
power only 0.8 per cent of all power resources in agriculture. In 1940 draught cattle accounted
for 22 per cent and mechanical power 78 per cent of power resources; while by the beginning
of 1955, they accounted for 7 per cent and 93 per cent respectively (including tractors 33 per
cent, lorries 39 per cent; combine motors 15 per cent, electricity plant 4 per cent and other
forms of motive power IO per cent).

The socialist transformation of agriculture has eliminated the primitive,

centuries-old, three-field system and has made possible the application of new,
most advanced systems in agriculture. The main features of these systems are
the general introduction of the latest techniques and the achievements of
agronomy, correct crop rotations with the widespread cultivation of fodder,
vegetable and technical crops, the use of artificial and organic fertilisers,
irrigation of dry regions, draining of marshes, etc.
The proper operation of socialist agriculture presupposes a definite
specialisation of agricultural enterprises. Specialisation of socialist agricultural
enterprises takes the form of planned selection for each enterprise, depending
on the natural and economic peculiarities of a particular district or zone, of the
main branches of production, and together with them the development of
supplementary branches. Thus specialisation does not reject, it presupposes
the development of mixed farming with proper combination of the main and
supplementary branches. Such farming makes possible the most productive
use of land and labour-power.
Alongside the enlargement of the scale and the technical re-equipment of
agriculture, there takes place the training of new cadres of agricultural workers
who have mastered modern advanced techniques and agronomic science. In
the U.S.S.R. agronomic scientific achievements have become the property of
the broad masses of the peasantry for the first time in history. The mass
introduction of new techniques has called into being new categories of workers
in mechanised agriculture: tractor and combine operators, drivers, mechanics,
operators of threshers, flax-pullers, cotton harvesters and other machines. The
collective farm system has produced numerous skilled directors and organisers
of production-collective farm chairmen, team leaders, agronomists and
livestock specialists, heads of farm sections and others.

Methods of Technical Progress in a Socialist Economy

The main directions of technical progress in a socialist economy are: the

perfecting of instruments of production and technological processes,
mechanisation and automation of labour processes, electrification of the
national economy and widespread use of chemicals in production, and the use
of atomic energy for peaceful purposes.
Under socialism mechanisation of labour processes plays a tremendous
role in technical progress.

The basis of technical progress lies in improving the instruments of production in such a
way as to raise the productivity of machinery, making it work more economically and reliably,
lengthen its useful life, increase the automation of controls, and lower the expenditure of metal
and other materials in the production of the machines. Improving the instruments of
production is inseparably connected with improving the technological processes, methods of
processing and utilising raw and other materials, the introduction of new types of raw and
other materials, the application of high and very high speeds, pressures and temperatures.
Socialism offers wide opportunities for constantly improving the instruments of
production and technological processes. The development of the material and industrial basis of
socialism is impossible without a determined struggle against technical hitches and routinism;
it requires the speedy, wide-scale introduction into industry of all the achievements of Soviet
and foreign advanced science and techniques.
During the years of Soviet Power an extensive network of scientific research institutes
and designing organisations has been established, and workers inventions and the mass
movement of innovators in production have been given wide support.
Soviet technologists are successfully solving a series of new technical problems in the
field of designing new machinery and mechanisms for all branches of industry. Soviet designers
have created, for instance, such machines as mining combines, numerous agricultural
machines (potato-planting and potato-lifting machines flax-picking combines, beet-lifting
combines), new types of modern machinery in the field of energetics, powerful building
mechanisms, several new types of metal-cutting lathes and so on.
An important factor in technical progress is the utmost utilisation of the scientific and
technical achievements of foreign countries. In a number of cases the machinery that is made
in Soviet enterprises is not up to the standard of the foreign types produced abroad. The
advantages of the socialist system provide every opportunity for accelerating technical
progress, for overcoming the backwardness that exists in some sectors of industry, so as to
surpass the scientific and technical achievements in the capitalist countries as quickly as
possible.

Mechanisation is the replacement of manual labour by labour effected

with the aid of machinery. The consistent mechanisation of labour operations is
an economic necessity under socialism. The uninterrupted and rapid growth of
socialist production is possible only by means of the constant perfecting of
techniques and the all-round mechanisation of labour processes. Mechanisation
of the main and most arduous production processes is being consistently
carried out in all branches of the national economy in the U.S.S.R.

In the industry of the U.S.S.R. mechanisation has reached a high level. In the coal
industry, where heavy manual labour was the universal rule before the revolution,
mechanisation on the basis of general introduction of coal-cutters, electrical means of transport
and loading devices, amounted already in 1940 to 94.8 per cent for cutting and stripping
operations, 90.4 per cent for conveying operations, 58.4 per cent for hauling operations, and
86.5 per cent for loading into rail wagons. In the post-war years the mechanisation of cutting,
stripping and conveying, as well as of underground transport and loading into rail wagons, has
been fully completed. Great successes have also been achieved in mechanising other branches.
Thus, for example, in the construction of hydro-electric stations such outstanding achievements
of Soviet technology as the new powerful excavators, bulldozers, earth-diggers and other
machines are being used. The 494 cubic-foot walking excavator of the Urals Machinery Works
can scoop up more than 88 million cubic feet of earth a year, replacing the physical labour of
7,000 workers.
By 1954 autumn and spring ploughing operations in the collective farms had been
almost completely mechanised; winter sowings 95 per cent, spring sowings 88 per cent.
Sowings of cotton, sugar-beet and other industrial crops had been almost fully mechanised.
Over 40 per cent of the area in the collective farms sown to potatoes was planted by the
machine and tractor stations. Of all the grain crops 82 per cent was harvested by combines of
the sunflower crop3 percent. The mechanisation of the main field work on the collective
farms is almost complete. In the State farms the most important agricultural work is performed
in the main by machinery. However, the existing achievements in the field of mechanisation of
agriculture are not sufficient from the viewpoint of satisfying societys growing requirements for
agricultural produce. The expenditure of human labour per unit of output in collective and State
farms is still high. There is a need for further wide development of mechanisation in cattle-
breeding, vegetable cultivation, horticulture, transporting, loading and unloading of agricultural
products, irrigation works and drainage of marsh lands.

In socialist economy, complex mechanisation is being constantly

extended. Complex mechanisation means mechanisation of all the stages of
the production process which are connected with each other, including both the
main and also the auxiliary stages, and is based on a system of mutually
complementary machines. It eliminates interruptions in the chain of
mechanisation of production. As a result of complex mechanisation a system of
machinery covering the whole production process comes into being.
The highest stage of mechanisation is the automation of production,
which is the use of self-regulating automatic machines. Closely connected with
automation is the system to telemechanics, which is the remote management
and control of the working of machines. Where the entire complex of
machinery covering a production process as a whole is self-regulated, there is
an automatic system if machinery. An automatic system of machinery carries
out all the production processes required for the working up of raw material
into the finished product, without direct human interference, and only requires
supervision by the worker.

During the post-war years definite successes in regard to automation of production

processes have been achieved in a number of branches of industry in the U.S.S.R. In the
enterprises of the ferrous metallurgical industry of the U.S.S.R., 95 per cent of all pig-iron is
smelted in blast-furnaces with automatic regulation of the heat blast and about 90 per cent of
all open-hearth steel is smelted in furnaces equipped with automatic thermal regulation. In
heavy metallurgy, automation of blast and open-hearth furnaces has increased their
productivity 7-10 per cent and brought about a 6 per cent reduction in fuel consumption. In the
engineering industry the stock of automatic and semi-automatic metal-working lathes,
automatic forge pressers and also automatically-controlled gauging instruments increases year
by year. The use of automatic equipment in the chemical, paper, oil-refining and other
industries is increasing. Automatic systems of machinery in the U.S.S.R. take the form of
automatised lines of machine tools and other mechanisms and of completely automatised
enterprises.

The wide use of mechanisation in socialist economy is the basis for the
rapid growth in labour productivity and increasingly reduces the gap between
physical and mental labour.
Reconstruction of all branches of the economy on the basis of large-scale
machine production and the systematic mechanisation of the productive
processes is closely bound up with electrification. Electricity is the technical
basis of modern large-scale production.
Socialism ensures the planned introduction of electricity into all sectors of
the national economy. Electrification under socialism is characterised in the first
place by centralisation of electric power output and concentration of capacity in
large electricity stations, and by rapid development of high-voltage electric
transmission lines combining separate stations into powerful regional or inter-
regional systems, with the perspective of a unified high voltage net-work
covering the entire country; secondly, by widespread construction of hydro-
electric stations and the systematic raising of their share in total electricity
output (which is a most important means of improving the power balance of
the country); thirdly, by thermal power stations for large towns and industrial
centres.
Electrification of industry changes the appearance of factories and mills.
Instead of a central generator with a complex transmission system, individual
electric drive has been introduced into almost all enterprises. Electrification of
the working machinery provides the power basis for complex: mechanisation
and automation. With the application of electricity, new branches of industry
have sprung upelectro-metallurgy of ferrous and non-ferrous metals, electro-
chemistry and also new methods of metal-working.
The construction of powerful hydro-electric stations on the Volga,
Dnieper, Don, Kama, Angara, Irtysh, Ob and other rivers which has been
undertaken in the fifth Five-Year Plan is of great importance for the further
electrification of the U.S.S.R. Some of these schemes are the largest in the
world. Their construction is making possible the complex solution of the
problem of obtaining cheap electric power on an enormous scale of the
widespread development of electrification in agriculture and transport, of the
creation of new industries depending on electric power, improvement of
navigation, etc.

In the four years of the fifth Five-Year Plan, powerful hydro-electric stations, equipped
with the very latest techniques, began to operate: Tsimlyansk, with a capacity of 164,000
kilowatts, Gyumush224,000 kilowatts, Upper Svir160,000 kilowatts, Mingechaur357,000
kilowatts, the first section (126,000 kilowatts) of the Kam, whose total capacity will be 500,000
kilowatts, and others. In the same period large thermal electric stations began to operate:
Mironovskaya with a capacity of 400,000 kilowatts, Slavyanskaya200,000 kilowatts, Yuzhny
Kuzbas400,000 kilowatts, the first section (300,000 kilowatts) of Cherepetskaya, which is
now being expanded to 600,000 kilowatts, and a number of others. The new Kuibyshev, Gorky,
Kakhovka and other powerful hydro-electric stations were providing current for industry in
1955. The capacity of the hydro-electric stations under construction in the U.S.S.R. will be
twice that of all the Soviet hydro-electric stations that were operating at the beginning of 1954.
In the post-war years there has been a process of introduction of electricity into
agriculture. By the beginning of 1955 the capacity of rural power stations had increased 6-fold
compared with 1940, and 40 per cent of all collective farms were using electric power. The
mechanisation of threshing operations, as well as a number of production processes in livestock
farming, is taking place in many collective and State farms, on the basis of electricity
(preparation of fodders, water supply, milking, sheep-shearing, etc.).

The progress of modern, techniques is also reflected in the ever-growing

development of chemistry and in the application of chemical methods of
treating matter. Chemical methods imply the speeding up of production
processes, the fullest utilisation of raw materials and the creation of new types
of raw materials. The chemical industry in the U.S.S.R. has become a powerful
factor in the technical development of the entire national economy. Modern
chemical production is, as a rule, automatised. It is carried on uninterruptedly
in closed apparatus, with automatic control and regulation and without direct
human interference. Chemistry is a most important prerequisite for raising crop
yields. The creation of an abundance of consumer goods is linked with the
widespread use of chemicals in agriculture.
The climax of the contemporary stage of technical development was the
discovery of methods of obtaining and using atomic energy. The Soviet Union is
the first country to utilise atomic energy for peaceful purposes. The U.S.S.R.
was the first country in the world to operate an industrial electric station by
means of atomic energy, with a useful capacity of 5,000 kilowatts.

The Location of Socialist Production

Under socialism a new location of production takes shape and, with it, a
new system of communications between branches of production and regions of
the country.
In bourgeois society competition and the hunt for profit lead to the
unequal and irrational location of production. Industry is concentrated without
plan in a small number of centres while vast territories, particularly the colonial
regions, are condemned to industrial backwardness. Under socialism the
location of industry takes place in a planned way for the purpose of raising the
productivity of social labour, increasing the strength of the Socialist State and
raising the living standards of the working people.
In locating socialist industry, the Soviet State bases itself on the following
principles which are determined by the economic laws of socialism.
First, production to be sited as close as possible to the sources of raw
materials and to the regions consuming industrial and agricultural output. In
sketching out the basis for a plan for re-organising industry and for the general
economic revival of the country, Lenin pointed out:

This plan must include:

rational location of industry in Russia, from the point of view of the
proximity of raw materials and the possibility of reducing wastage of
labour to the limit in passing from the processing of the raw material,
through all the subsequent stages of processing the semi-finished
product, right up to the receipt of the finished product. (Lenin, Draft
Plan for Scientific and Technical Work, Works, Russian edition, vol.
XXVII, p. 288.)

Location of production in this way makes possible the better utilisation of

natural resources and the elimination of irrational hauls; it provides a
considerable economy in labour for society as a whole, and accelerates the rate
of growth of the national economy.
Secondly, the planned territorial division of labour between economic
regions, combined with complex economic development within these regions,
taking into account the natural conditions of each region and the economic
expediency of producing particular industrial goods and agricultural products.
The complex development of economic regions which takes into account the
needs of each region for fuel, building materials, mass-produced products of
light industry and foodstuffs, reduces abnormally long and other irrational
hauls, and promotes the use of local raw material resources.
Thirdly, the planned location of industry throughout the territory of the
country, securing the formation of new towns and industrial centres in formerly
backward agrarian districts and thereby bringing agriculture and industry closer
together. This helps to abolish the essential distinction between town and
country.
Fourthly, the elimination of the real economic inequality of peoples and
the rapid development of the economy of formerly backward national regions.
This is the material foundation for strengthening the friendship and co-
operation of the peoples.
Besides this, the location of socialist industry takes into account the
interests of strengthening the defensive capacity of the Socialist State, which
determines the need for a particularly rapid growth of numerous branches of
industry in the interior of the country.
During the years of Soviet power much work was done to eliminate the
unequal location of production inherited from capitalism.
The siting of industry close to raw material resources was reflected above
all in the rapid development of the eastern regions of the country and the
creation of new fuel and metallurgical bases, new centres of engineering and
light industry, in the Urals, Western Siberia, Central Asia and Kazakhstan. The
newly-created industrial areas have become economic and cultural centres,
changing the whole character of these districts and regions. The creation of a
powerful industrial base in the East was one of the most important factors in
the victory of the Soviet Union in the great Patriotic War.
During the Patriotic War and post-war years, industry was still further
developed in the eastern districts-the Volga region, the Urals, Siberia, the Far
East, the Kazakh S.S.R. and the Union Republics of Central Asia.
In 1954 approximately one-third of the countrys entire industrial output
was produced in these regions: more than 60 per cent of the total oil, over half
the total steel and rolled metals, almost half the total coal and more than 40
per cent of the output of electrical power. While total industrial output in the
U.S.S.R. had increased 2.8 times in 1954 compared with 1940, the total
industrial output in the eastern areas had increased four times.

In the Uzbek Kazakh, Kirgiz, Turkmenian and Tadjik Soviet Republics, with population of
less than 20 million, electric power output in 1954 was a little over four times as great as in the
Eastern countries bordering on the U.S.S.R.Turkey, Persia, Afghanistan and Pakistan
combined, with a population of more than 130 million.

The development of socialist industry in a number of economic regions

which formerly had no industry has meant that the old division between
industrial and agrarian regions belongs essentially to the past. Important
changes have taken place in the location of agricultural production in the
U.S.S.R., testifying to the fact that the former one-sided specialisation of
agriculture of pre-revolutionary Russia has been successfully eliminated. A
powerful gram base has been created m the eastern regions of the U.S.S.R.,
agricultural crops have been pushed far to the north, and food producing areas
have grown up around the towns and industrial centres.
In spite of the successes achieved, there are still serious shortcomings in
the location of socialist industry. Thus, new enterprises are still not infrequently
built m the old industrial areas without taking into account the supply of local
raw materials and fuel for these enterprises. At the same time there is a
serious lag in the development of industrial construction in the east of the
country, particularly in Siberia, the Far East, Central Asia and Kazakhstan,
where there are adequate resources of raw materials and power.
One of the most important factors in the further progress of socialist
economy is the elimination of these shortcomings and the improvement of the
location of industry.
Socialist location of production ensures the most effective utilisation of
the natural wealth and labour resources of the country and makes it possible to
raise the productivity of social labour, accelerate the growth of production and
strengthen the economic might of the U.S.S.R.

BRIEF CONCLUSIONS
(1) Large-scale machine production, embracing all branches of national
economy and based on advanced technique and the labour of workers free
from exploitation, is the material production basis of socialism. In socialist
economy, machinery serves to economise and lighten the labour of workers
and peasants and to raise the living standards of the people. Socialist industry
in the US.S.R. is the most highly concentrated in the world, technically
advanced and centralised on a country-wide scale. It serves as a basis for the
development of all branches of the economy. Socialist agriculture is the largest
in the world and highly mechanised.
(2) The material production basis of socialism rests on the latest
achievements of modern advanced science and technique. Socialism eliminates
inequalities in the use of machine techniques between different branches and
processes of production which are natural to capitalism, and ensures the
consistent application of new techniques in all branches of the national
economy. The chief lines of development of technique under socialism are
perfecting of the instruments of production and improvement of technological
processes, mechanisation and automation of labour processes, electrification of
the national economy, wide use of chemicals and the application of atomic
energy for peaceful purposes.
(3) Socialism has secured the planned and rational location of
production, siting it close to the sources of raw materials and consuming
regions, has overcome the economic backwardness of the national regions and
has brought industry and agriculture closer together. Socialist location of
production makes possible the efficient utilisation of natural and labour
resources, leads to enormous economies in the transport of raw materials and
finished products, and is an important factor in accelerating the growth of
socialist production and strengthening the defensive capacity of the country.
 CHAPTER XXVIII

SOCIAL OWNERSHIP OF THE MEANS OF

PRODUCTIONTHE FOUNDATION OF THE
PRODUCTION RELATIONS OF SOCIALISM

The Socialist System of National Economy and Socialist

Property

The economic basis of socialist society is the socialist system of national

economy and socialist ownership of the means of production, which have been
consolidated by elimination of the capitalist economic system, the abolition of
private ownership of the means of production and the eradication of
exploitation of man by man.
Exposing the concoctions of the apologists of capitalism who asserted
that the programme of scientific Communism was a programme for abolishing
property altogether, Marx and Engels wrote: The distinguishing feature of
Communism is not the abolition of property generally but the abolition of
bourgeois property. (Marx and Engels, The Communist Manifesto; Marx and
Engels, Selected Works, 1948, vol. I, p. 21.) No society is conceivable without
the predominance of a historically determined form of property. In eliminating
the private ownership of the means of production, the proletarian revolution
sets up socialist ownership of the means of production in its place.
In socialist society the means of production have ceased to be capital,
that is, to be a means of exploitation. In socialist society there are no longer
classes with a monopoly of property in the means of production arid classes
deprived of property in the means of production. In the conditions of socialism
the means of production are social property. The main elements in the
production process-labour-power and the means of productionare here
united on a new basis, that of large-scale socialist production in both town and
country. Since the means of production have ceased to be capital, there is no
longer a division of accumulated labour into constant and variable capital under
socialism. The whole mass of accumulated labour in society, that is, the whole
mass of the means of production and the means of consumption, at the
disposal of society for further production, serves the interests of the people
and cannot provide a basis for exploitation. In bourgeois society, living labour
is but a means to increase accumulated labour. In communist society,
accumulated labour is but a means to widen, to enrich, to promote the
existence of the labourer. (Marx and Engels, The Communist Manifesto; Marx
and Engels, Selected Works, 1950, vol. I, p. 22.).
Under socialism, social ownership is completely predominant in all
spheres of the national economy. In 1950 in the U.S.S.R., socialist property
embraced 99.4 per cent of all the means of production in use in the country.
With the consolidation of the undivided predominance of social property, the
false theory of bourgeois ideologists about the eternity and immutability of
private capitalist property has been completely discredited.
The conversion of the means of production into social property, and the
emancipation of the workers from all forms of exploitation, signified the
consolidation of the new socialist system of national economy.
The socialist system national economy differs fundamentally from the
capitalist economic system and has decisive advantages over it.
(1) In the socialist system of national economy the means of production
are social property, that is, they belong to the working people in the person of
either the socialist State or of the collective farms and other co-operative
unions. Consequently, the products of labour also belong to the working
people. In the capitalist economic system the means of production are the
private property of the capitalists and landowners and consequently the
products of labour also belong to the capitalists and landowners.
(2) The socialist system of national economy means that the exploitation
of man by man has been abolished, and that the purpose of production is the
maximum satisfaction of the growing material and cultural needs of the whole
of society. Capitalist production is for the purpose of securing the maximum
capitalist profit through the exploitation, ruin and enslavement of the working
people.
(3) Socialist production develops in a planned way and without
interruption. The steady rise in the living standards and purchasing power of
the working people are a stimulus to increased production and a secure
guarantee of freedom from crises of overproduction and unemployment.
Capitalist production develops without plan. The growth of production runs up
against the proletarian condition of the working people and the relative
reduction of their purchasing power. This inevitably brings crises of
overproduction, growing unemployment and impoverishment of the masses.
(4) In socialist society each worker receives material wealth according to
the quantity and quality of his labour. The distribution of the national income
serves to raise the welfare of the working people, extend socialist production in
town and country and increase the social wealth. Under capitalism, distribution
of the national income takes place for the purpose of enriching the exploiting
classes and their numerous parasitic menials.
(5) In the socialist system, State power belongs to the working people of
town and country. Workers, peasants and intelligentsia are active builders of
communism, working for themselves and for the good of the whole of society.
The capitalist economic system means that power in society belongs to the
capitalists, who use this power to maintain a state of affairs which is
satisfactory and advantageous to the propertied classes, while the proletariat
and the working masses of the peasantry are exploited classes, compelled to
work for the capitalists and landowners.
Social property is the foundation of the socialist system, the source of
wealth and power of the Motherland, the means to a rich and cultured life for
all the working people. It is sacred and inviolable. The Constitution of the
U.S.S.R. obliges every citizen in Soviet society to safeguard and strengthen
social property. Persons attacking socialist property are enemies of the people
and are punished by law.

Two Forms of Socialist Property

In the first phase of communism, social or socialist property exists in two

forms; (1) State property and (2) co-operative and collective farm property.
State socialist property is the property of the whole of the Soviet people,
vested in the Socialist State of workers and peasants. Co-operative and
collective farm socialist property is the property of individual collective farms
and co-operative unions.
To the two forms of socialist property there correspond two forms of
socialist economy: (1) State enterprise (factories, mills, State farms, M.T.S.,
etc.) and (2) co-operative (collective) economy (collective farms, industrial
artels, enterprises of the consumer co-operatives).
The existence of the two forms of socialist property is the result of the
historical conditions in which the proletarian revolution and the construction of
communism take place. Having won State power, the working class finds in
existence different forms of private property which have evolved in the course
of history: on the one hand, large-scale capitalist property based on the
exploitation of hired labour and, on the other, small-scale private property of
the peasants, artisans and handicraftsmen which is based on their personal
labour. In the course of the socialist revolution large-scale capitalist property is
expropriated and passes into the hands of the socialist State. Hence there
arises State (public) socialist property. At the same time the programme of
scientific communism rejects the expropriation of the peasants, artisans, and
handicraftsmen as a hostile and criminal method. Small-scale and middling
commodity producers voluntarily combine in producer co-operatives, that is,
collective farms and industrial co-operatives. The means of production that
they own are socialised on co-operative lines. Hence there arises co-operative
and collective farm property.
Thus the two forms of social property are an objective necessity and
reflect the differences in the paths along which the working class and the
peasantry move towards socialism and, subsequently, towards communism.

Each of the two classes which exist in the U.S.S.R. is building

socialism, and enters into the system of socialist economy. But while they
form part of the one general system of socialist economy, the working
class is linked by its labour with State socialist property (the property of
the whole people), while the collective farm peasantry is linked with co-
operative and collective farm property belonging to the individual
collective farms and collective co-operative unions. These links with
different forms of socialist property are what determine, in the first
place, the differences in the position of these classes. They also
determine certain differences in their future path of development.
Common to their development is the fact that both these classes
are developing towards communism. (V. Molotov, The Constitution of
Socialism. Articles and Speeches, 1937, Russian edition, p. 267.)
 State property in the U.S.S.R, consists of the land, mineral wealth,
waters, forests, mills, factories, pits, mines, rail, water and air transport,
banks, communications, large agricultural enterprises organised by the State
(State farms, machine and tractor stations, etc.), trade and purchasing
enterprises belonging to the State, and also municipal enterprises and the main
house property in towns and industrial centres.

The territory of the Soviet Union occupies one-sixth of the worlds surface8.7 million
square miles. More than one-quarter of this territoryover 1,490 million acresis agricultural
land; the area covered by forests is 1,740 million acres.
The U.S.S.R. is the richest country in the world in its deposits of useful minerals. The
socialist economic system has brought to life the wealth which remained untouched in tsarist
Russia. The U.S.S.R. holds first place in the world in its deposits of iron ore, oil, potassium
salts, apatites, peat and a number of other important mineral deposits, and second place in
coal deposits.
Two hundred thousand enterprises in State industry, the entire railway network, water
transport installations and State enterprises in agriculture are national property. So are over
5,000 State farms, about 9,000 machine and tractor stations and thousands of subsidiary
agricultural undertakings; likewise many thousands of State trading enterprises. Numerous
scientific and cultural institutions also belong to the State.
Thanks to the labour of the Soviet people, the State socialist property brought into
being as a result of the nationalisation of the factories, mills, transport, etc., has multiplied on
a huge scale during the years of socialist construction. Thus the basic productive stocks of
industry had increased 24-fold by 1954, compared with 1913.

State socialist property differs fundamentally from State capitalist

property. When one enterprise or another, or even a whole branch of the
economy, becomes the property of the bourgeois State, its social nature is
unaltered. The modern bourgeois State represents the interests of monopoly
capital and is an instrument of coercion in its hands, with which it protects the
oppression of the working majority by the propertied minority. Accordingly,
State capitalist enterprises, too, are based on the exploitation of the working
people and stand opposed to the people, as an alien and oppressive force.
In socialist society power is in the hands of the working people, headed
by the working class. They own the means of production. The labour-power
used in socialist enterprises is not a commodity, since the working people who
own the means of production, cannot sell their labour-power to themselves.
Accordingly, every possibility of the exploitation of man by man is ruled out in
socialist enterprises.
State property is the predominant form of property in socialist society,
accounting for about 91 per cent of the total productive stocks of the U.S.S.R.
Thus the bulk of the wealth of the Soviet Union and the most important
sources of improvement in the living standards and cultural level of the
working people, are the property of the whole people.
Co-operative and collective farm property in the U.S.S.R., consists of
socially-owned enterprises in the collective farms and co-operative
organisations, their livestock and implements, their output and also their
socially-owned buildings. The land which is cultivated by the collective farms
and other co-operative enterprises is the property of the whole people. The
finest modern techniques which are concentrated in the machine and tractor
stations, and are used for all the main works in the collective farms, are also
the property of the whole people.

Co-operative and collective farm property consists, first and foremost, of the 89,000
collective farms: the collective farm buildings, hundreds of thousands of cattle-breeding
sections, socialised draught cattle, agricultural implements, a large network of collective farm
cultural and living amenities (clubs, reading-rooms crches rural laboratories, etc,), In the.
course of socialist construction, socially-owned collective farm property has been enormously
multiplied. Between 1940 and 1954 the indivisible funds of the collective farms increased 2.8-
fold.
Co-operative industrial production in socialist society takes the form of industrial artels.
Industrial co-operation is mainly called upon to develop the production of mass consumer
goods, using for this purpose local raw material resources first and foremost. The means of
production used by industrial co-operatives, and their output, are the property of the industrial
artel. Industrial co-operatives of all types in the U.S.S.R. numbered at the end of 1954 more
than 14000 artels engaging in industrial production.
The co-operative form of enterprise in trade consists of consumer societies which mainly
cover the rural population. The property of the 23,000 consumer co-operative societies include
an extensive network of shops, stores and warehouses.

The all-round strengthening and development of State co-operative and

collective farm property is a most important prerequisite for the further growth
of the entire national economy and the gradual transition of Soviet society from
socialism to communism.
State, co-operative and collective farm forms of property, like State
enterprises and collective farms themselves are of a kindred social nature.
Common to State enterprises and collective farms is the fact that both: (1) are
based on socialist, socialised means of production and collective labour; (2)
rule out the possibility of the exploitation of man by man, (3) conduct their
economy in a planned way, for the satisfaction of the growing needs of the
working people, (4) follow the socialist principle of distribution according to
work.
At the same time there are certain differences between State and co-
operative or collective farm property, just as there are between State and co-
operative (collective) enterprises.
First, in State enterprises socialist relations of production predominate in
their most mature and consistent form. State property is the property of the
whole people; in State enterprises all the means. of production without
exception are socialised. Co-operative and collective farm property is group
property, the property of separate collectives or unions of working people (the
agricultural artel, consumer society, or industrial artel); in the collective farms
(in their artel form) the main means of production of the co-operating peasants
have been voluntarily socialised; a certain part of the means of production, in
accordance with the Statute of the agricultural artel, is not socialised but
remains the personal property of the collective farm household (the personal
subsidiary economy of the collective farmer.)
Secondly, the output of State enterprises is the property of the Socialist
State, and is sold as laid down by, and at prices fixed by, State bodies.
Collective farm produce is the property of each collective farm. One part goes
to meet the farms obligations to the State, in the form of produce sold at fixed
State prices and of payments in kind for the work carried out on the collective
farm by the machine and tractor station. All remaining produce remains at the
disposal of the collective farm, and is used to build up the prescribed, socially-
owned collective farm funds, and for distribution among the members
according to labour-days earned. The collective farms sell a part of their
produce at purchase prices which exceed the State fixed prices, or at market
prices in collective farm trade.1
Thirdly, in the State enterprises, which are the property of the whole
people, the share of the social product going to the worker for his personal
consumption is paid out in the form of wages. The State lays down in advance
fixed wage-scales for a unit of product or of working time. Since the collective
farmer is a member of an artel, which is group property, he receives the share
of the income due to him in the form of payment for labour-days, out of the
funds of his collective farm. The size of this income depends on both the
degree of participation of the collective farmer in social labour, which is
expressed in the number of labour-days which he has worked, and also on the
level of labour productivity and degree of development of the socially-owned
economy of the collective farm, which is expressed in the size of payment for
each labour-day. The better the collective farm works as a whole, the higher
the harvest yield and the productivity of the livestock, the higher is the income
of each collective farmer. Wages are paid to the workman in a money form.
The incomes of the artel are distributed among the collective farmers both in
money and in kind (produce). While the workmans sole source of income is his
labour in a socialist enterprise, the main source of income of the collective
farmer is his labour in the socially-owned economy of the collective farm, and a
supplementary source is his labour in the personal subsidiary plot of his
household. The collective farmer sells on the market a part of the produce
which he has received for his labour-days, and from his personal subsidiary
plot.
Fourthly, the Socialist State directly guides the enterprises belonging to
it, administering them through its representativesthe directors of enterprises,
who are appointed and removed by the appropriate State institutions. The
State institutions, relying on the creative initiative of the workers. engaged in
production, plan directly the entire productive activity of these enterprises, and
regulate the main aspects of socialist organisation of labour in them. In the
collective farms, in accordance with their co-operative nature, their entire
business is administered by the highest body of the agricultural artelthe
general meeting of the collective farmers, and the management and collective
farm chairman elected by them. The production and financial plans of the artel,
its rules, standards of output and rates of reward, and the distribution of
revenues are laid down by the collective farmers themselves, on the basis of
the Statute of the agricultural artel and guided by the existing laws, planning
targets and directives of the Socialist State.
The differences between State enterprises and co-operative (collective)
enterprises are not differences of a fundamental kind. They are differences of
1
That is, the collective farms can dispose of their surplus produce, after they have sold
what is due to the State at fixed prices, paid the M.T.S. in kind for their work, and allocated
the balance either to the common funds or for distribution among the members, in different
ways: (i) further voluntary sales to the State, but at much higher prices than those paid for the
fixed deliveries (ii) at collective farm markets in the towns where they themselves fix the
price at what the market will standEditor, English edition.
two forms of economy within the framework of socialist relations of production.
State property is the highest form of socialist property, and the State form of
production is the highest form of socialist production.
Enterprises based wholly on State property are of a consistently socialist
type. Lenin defined them as enterprises in which the means of production, the
land on which the enterprises are situated, and the enterprises as a whole,
belong to the State. (Lenin, On Co-operation, Selected Works, English
edition, 1950, vol. II, Part 2, p. 720.) In State enterprises the means of
production, the labour of the manual and clerical workers and the output they
produce are all socialised on a nation-wide scale. The State form of production
embraces the (leading branch of the national economysocialist industry. The
large factories producing agricultural productsthe State farmsare national
property. The land and its .main instruments of productionthe tractors,
combines and other agricultural machinery in the machine and tractor stations
and State farms-are the property of the State. The leading and determining
role in the entire national economy belongs to State property, as the highest
form of socialist property.

Personal Property under Socialism

Social ownership under socialism extends to the means of production and

the finished products. A part of these products subsequently becomes means
of production and remains social property. Another part, consisting of objects
of consumption, is distributed among the workers in accordance with the
quantity and quality of the labour of each, and becomes the personal property
of the working people.
In The Communist Manifesto Marx and Engels pointed out that
communism deprives nobody of the opportunity of personally acquiring a
definite share of the product of social labour. Communism only abolishes the
despicable character of acquisition characteristic of capitalism, whereby the
worker only exists for the purpose of increasing capital.
Outlining the foundations of the future socialist society, Engels wrote in
Anti-Dhring that

social ownership extends to the land and the other means of production,
and private ownership to the products, that is, the articles of
consumption. (Engels, Anti-Dhring , English edition, 1954, p. 181.)

With the abolition of the capitalist mode of production, those economic

laws of capitalism also lose their validity which limit the personal property and
personal consumption of the masses of the people to the minimum of essential
products required for the maintenance and reproduction of labour-power. Far
from abolishing personal ownership of objects of consumption, socialism
provides the only real safeguard for the ever fuller satisfaction of the personal
needs of all members of society.
The right of the working people in socialist society to personal property
extends to their incomes from work and their savings, their houses and
domestic plots, domestic and household goods, and objects of personal use
and comfort.
The property of the collective farm household is a special form of
personal property in conditions of socialism. In accordance with the Statute of
the agricultural artel, each collective farm household has as its personal
property its subsidiary economy, its household allotment, its house, cattle,
poultry and small agricultural equipment.
Labour alone is the source of personal property in the socialist epoch.
With the complete predominance of socialist relations of production, personal
property cannot be converted into capital, that is, used as a means of
exploitation. The right to personal property, as also the right to inherit personal
property, is safeguarded by the Constitution of the U.S.S.R.
In socialist society personal property is indissolubly linked with its basis,
social property. With increasing social property and national wealth, ever larger
quantities of products are available for the satisfaction of the personal needs of
the working people of socialist society. Socialism ensures the harmonious
combination of the personal interests of individual members with the interests
of society as a whole.

The Character of Socialist Relations of Production

By their very nature, socialist relations of production differ fundamentally

from the production relations of capitalism and of other social systems based
on private ownership of the means of production.
Socialist relations of production are characterised by: (1) complete
predominance of social ownership of the means of production, existing in two
formsState ownership and co-operative collective farm ownership; (2)
emancipation of the working people from exploitation and the establishment of
comradely co-operation and socialist mutual aid: (3) distribution of the
products of labour in the interests of the working people according to the
principle: to each according to his labour.
Socialist ownership of the means of production gives rise to mutual
relations between people engaged in the production process which are quite
different from those obtaining under capitalism. Private property in the means
of production inevitably divides people, gives rise to relations of domination
and subordination and to the exploitation of some people by others, evokes
antagonism of interests, class struggle and competition. On the other hand,
social ownership of the means of production unites people, ensures a genuine
community of interests and comradely co-operation.
The predominance of social ownership of the means of production gives
rise also to a quite different kind of distribution in a socialist society from that
existing under capitalism.
Because exploiting classes and the exploitation of man by man do not
exist in socialist society, there is no division of labour into necessary and
surplus labour, and equally no division of the product into necessary and
surplus product. Socialist relations of production give rise to an objective
necessity for a quite different division of labour and its product from that
obtaining under capitalism. Under socialism the means of production are
socially-owned, and production itself is for the satisfaction of the needs of
society as a whole and of each of its members. Consequently the labour of the
producers is divided into the following two parts: work for oneself and work for
society. Accordingly, the product of labour also (excluding the part used to
replace expended means of production), is divided into two parts: the product
for oneself and the product for society. Work for oneself provides the product
which is distributed between the producers in accordance with the quantity and
quality of their work, and covers the personal needs of the worker and his
family. Work for society provides the product which is used for social needs:
expansion of production, development of education, health services, provision
for defence, etc. In socialist society, where the working people are themselves
in power, work for society is as necessary to them as is work for oneself. The
product for society, which is used to expand socialist production, augments the
material prerequisites of a further improvement in the welfare of the working
people. The product for society which is expended on education, health
services, social welfare and other material requirements of the whole people,
also serves to satisfy the needs of the working people, in the same way as the
product for oneself.
Social ownership of the means of production and of the products of
labour, together with the distribution of products in the interests of the working
people, account for the decisive superiority of the socialist over the capitalist
economic system. All the advantages of large-scale social production, which
ensures an enormous growth in the productive capacity of labour, accrue to
society as a whole and to the working masses, and not, as under capitalism, to
the exploiters.
The predominance of social ownership of the means of production means
that socialist production is freed from the contradiction, inherent in capitalism,
between the social character of production and the private capitalist form of
appropriating its fruits. In socialist society, social, socialist property in the
means of production is in conformity with the social character of production.
Accordingly, the relations of production in socialist society fully correspond to
the productive forces.
In characterising the socialist system, J.V. Stalin writes:

Here the relations of production fully correspond to the state of

productive forces, for the social character of the process of production is
reinforced by the social ownership of the means of production.
For this reason socialist production in the U.S.S.R. knows no
periodical crises of overproduction and their accompanying absurdities.
For this reason, the productive forces here develop at an
accelerated pace, for the relations of production that correspond to them
offer fullscope for such development. (Stalin, Dialectical and Historical
Materialism, Problems of Leninism, 1953, English edition, pp. 739-40.)

In contrast to the production relations of modern capitalism, all of which

to an increasing extent hinder the development of the productive forces,
socialist relations of production ensure their uninterrupted growth. Having
arisen and developed on the basis of the existing productive forces, socialist
relations of production are in turn a powerful motive force of their further
accelerated development.
 The full conformity of socialist relations of production to the character of
the productive forces of society does not mean, however, that there cannot be
any contradictions between them. Contradictions between the productive
forces and the relations of production inevitably arise, since the productive
forces, being the most mobile and revolutionary element in production, outstrip
the relations of production under socialism as well. However, in contrast to
social systems founded on exploitation, these contradictions are not
antagonistic and irreconcilable. Hence the position does not normally, in
socialist society, lead to a conflict between the relations of production and the
productive forces. Socialist society is able, in good time, to bring relations of
production into conformity with the level of the productive forces, since it does
not contain any classes interested in retaining out-dated forms of economy.

BRIEF CONCLUSIONS
(1) Socialism has two forms of social property: State property and co-
operative collective farm property. There are correspondingly two kinds of
socialist economy: State enterprises and co-operative (collective) enterprises.
(2) In socialist society, State property is the property of the whole
people. State property is the highest and most developed form of socialist
property. The leading and determining role in the entire national economy
belongs to it. In the U.S.S.R. it includes the overwhelming bulk of the nations
wealth. Co-operative collective farm property is the group property of
individual collective farms, industrial co-operative artels and consumer
societies.
(3) In socialist society personal property extends to the objects of
consumption. A special form of personal property is the personal property of
the collective farm household. The personal property of the working people
grows with the increase of socially-owned socialist property.
(4) The production relations of socialism are characterised by: (1)
complete predominance of social property in the means of production, existing
in two formsstate property and co-operative collective farm property; (2)
emancipation of the working people from exploitation, comradely co-operation
and socialist mutual aid between people in the process of producing material
wealth; (3) distribution of the product in the interests of the working people,
according to the principle: to each according to his labour.
Under socialism the division of labour into necessary and surplus labour,
and also the division of the product into necessary and surplus product,
disappear.
The labour of workers engaged in socialist production is divided into two
parts: work for oneself and work for society. In work for oneself, the workers
make the product which is distributed among them according to the quantity
and quality of their labour. In work for society, they make the product which is
used for social requirements.
(5) In socialist society the relations of production fully conform to the
character of the productive forces, and are the major and decisive force which
determines the uninterrupted growth at a rapid pace of the productive forces of
socialist society. The contradictions which arise in the course of socialist
construction between the productive forces and the relations of production are
not of an antagonistic character and do not develop into conflicts, since
socialist society is able in good time to bring the relations of production into
accord with the level of the productive forces.
CHAPTER XXIX

THE BASIC ECONOMIC LAW OF SOCIALISM

The Nature of Economic Laws under Socialism

As a result of the replacement of the old bourgeois production-relations

by socialist production-relations, the economic laws of capitalism, expressing
relations based on the exploitation of man by man, cease to operate. The law
of surplus-value, the basic economic law of modern capitalism, disappears from
the scene. The general law of capitalist accumulation, the law of competition
and anarchy of production, together with other laws, also disappear. The
categories which express capitalist relations cease to exist: capital, surplus-
value, capitalist profit price of production, wage-labour, the value of labour-
power, etc.
With the birth and development of socialist relations of production, new
economic laws make their appearance and begin to operate: the basic
economic law of socialism, the law of planned (proportional) development of
the national economy, the law of steady increase in the productivity of labour,
the law of distribution according to work, the law of socialist accumulation, etc.
Since commodity production continues to exist under socialism, the law
of value and the categories associated with it operate in socialist economy. The
new economic conditions created by the victory of socialism alter the character
of commodity production and commodity circulation, restricting their sphere of
operation. In socialist economy, commodity production and commodity
circulation exist without capitalists and serve the socialist economy. The sphere
of operation of the law of value is strictly limited.
Behind the outward form of the old categories of value lies concealed a
social content that is different in principle; the nature of these categories is
radically altered: money, trade and credit are used as instruments of socialist
construction. The economic system of socialism gives birth to new economic
categories, linked with the laws inherent in it; basic and circulating funds,
economic accounting, production costs, product for society, labour-day, etc.
The development of the socialist mode of production is also ruled by
economic laws which are common to all social formations, as for example the
law of the necessary conformity of the relations of production to the character
of the productive forces.
The economic laws of socialism express the essence of socialist relations
of production. In contrast to the economic laws of capitalism, which reflect the
growing exploitation of labour by capital, the economic laws of socialism reflect
the relations of comradely co-operation and mutual aid existing between
workers who are free from exploitation.
As with the economic laws of any other mode of production, the
economic laws of socialism arise and operate independently of the will of man:
that is, they have an objective character. They cannot be created, formed,
transformed or abolished by the will of man. Only on the basis of these laws
tan the development of socialist society be accomplished. Violation of the
requirements of these economic laws causes a number of difficulties and
contradictions and can lead to the dislocation of the countrys economic life.
Denial of the objective. character of the economic laws of socialism would
mean the destruction of the political economy of socialism as a science,
thereby depriving socialist society of the ability to anticipate the course of
events in the economic life of the country and to guide the national economy.
Such a denial is a departure from Marxism, to the standpoint of subjective
idealism. It inevitably leads to political adventurism and to arbitrariness in the
practice of economic management.
But the objective character of the economic laws of socialism does not in
any way mean that they operate as an elemental force which dominates man;
or that man is powerless in the face of economic laws. Such a fetishist
approach to economic laws inevitably leads to the theory of laissez-faire and
spontaneity in socialist construction. It is profoundly inimical to Marxism-
Leninism. In the conditions of socialism, because of the replacement of private
ownership of the means of production by social ownership, wide possibilities
are offered for becoming cognisant and making use of the laws of economic
development.
The economic laws of capitalism force their way forward as a blind and
destructive force, which operates behind the backs of private commodity
producers. But with the transition to socialism, anarchy of production
disappears and the economic development of society takes on a planned
character. With the elimination of capitalism and the socialisation of the means
of production, man becomes master of his social and economic relations.
Having become cognisant of objective laws, he can master and apply them
with full consciousness in the interests of society as a whole.
With the transition to socialism, Engels pointed out,

the laws of his own social action, hitherto standing face to face
with man as laws of nature, foreign to and dominating him, will then be
used with full understanding, and so mastered by him. Mans own social
organisation, hitherto confronting him as a necessity imposed by nature
and history, now becomes the result of his own free action. The
extraneous objective forces that have hitherto governed history pass
under the control of man himself. Only from that time will man himself,
with full consciousness, make his own historyonly from that time will
the social causes set in motion by him have, in the main and in
constantly growing measure, the results intended by him. It is the ascent
of man from the kingdom of necessity to the kingdom of freedom.
(Engels, Anti-Dhring, 1954, English edition, pp. 392-3.).

This refers to freedom as conceived by Marxism, that is to say freedom in

the sense of the recognition of necessity as the basis of the conscious activity
of people.
In capitalist society the spontaneous nature of the development of economy
and the class limitations of the bourgeoisie put narrow limits to becoming
cognisant of the economic laws of capitalism, which lead in the end to the
destruction of the capitalist system, to the victory of socialism. As far as the
bourgeoisie is capable of becoming cognisant of objective economic laws, it
makes use of them for narrow, class interests, which contradict the interests of
the working masses. The class interests of the proletariat fully correspond to
the objective course of the progressive development of society, which leads to
the victory of communism, and coincide with the interests of the overwhelming
majority of society. Under socialism there are no conditions of a social and
class nature that prevent people from fully cognising the laws of economic
development and using them to serve society. The working class and all
working people are vitally interested in cognising and using the laws of
economic development. The predominance of social ownership of the means of
production and the planned nature of the development of socialist economy
make the cognisance and utilisation of economic laws objectively essential,
since otherwise planned .leadership of communist construction would not be
possible.
The economic laws of socialism make possible the development and
progress of the socialist economy along the path to communism. In order,
however to make this possibility a reality it is necessary to apply these
objective economic laws with expert knowledge. Scientific cognition and correct
application of objective economic laws is the foundation of the economic policy
of the Communist Party and the Socialist State. The more fully socialist society
masters economic laws, the more accurately it reflects their requirements in its
practical activity, the more successfully will it achieve its purpose.
To apply economic laws with full knowledge it is essential to learn to take
into account the concrete economic and political conditions in which these laws
operate in each given period.

Essential Features of the Basic Economic Law of Socialism

Marx and Engels foresaw that in socialist society the purpose of planned
organisation of production would be the satisfaction of the needs both of
society as a whole and of its individual members. In developing this Marxist
thesis, Lenin wrote in the draft programme of the Russian Social-Democratic
Labour Party in 1902 that the substitution of socialist society for capitalist
society would be achieved to ensure the fullest well-being and free, all-round
development of all its members. (Lenin, Draft Programme of the Russian
Social-Democratic Labour Party, Collected Works, Russian edition, vol. VI, p.
12.).
The objective necessity and possibility of a systematic and rapid growth
of socialist industry, the electrification of the country, the development of
heavy industry, as the material basis for socialism, and of achieving a
productivity of social labour higher than that of capitalism and of raising the
welfare and cultural level of the working masses were placed by Lenin on a
scientific footing. In this way Lenin revealed the main principles of the basic
economic law of socialism, which have served to guide the policy of the
Communist Party and the Soviet Government.
Basing himself on these principles, Stalin set forth a developed
formulation of the basic economic law of socialism. The essential features and
requirements of the basic economic law of socialism are
the securing of the maximum satisfaction of the constantly rising
material and cultural requirements of the whole of society, through the
continuous expansion and perfection of socialist production on the basis
of the highest techniques. (Stalin, Economic Problems of Socialism in
the U.S.S.R., 1952, English edition, p. 45.)

The basic economic law of socialism expresses the purpose of socialist

production and the means of achieving it.
The purpose of production is determined by relations of ownership of the
means of production. When the means of production belong to the bourgeoisie,
production is inevitably carried on for the enrichment of the owners of capital,
while the working people, that is, the overwhelming majority of society, are
merely an object for exploitation. Consumption by the working people is
necessary to capitalism only to the extent that it is essential for the extraction
of profits. Under these conditions, man and his needs cannot be the purpose of
production. When the means of production belong to the working people, and
the exploiting classes have been eliminated, production is carried on in the
interests of the working people, that is, the whole of socialist society.
Accordingly the fullest satisfaction of mans growing material and cultural
requirements becomes the direct purpose of production.
The purpose to which production is subordinated is inseparable from the
means of its achievement.
The degree of satisfaction of the needs of the people depends on the
level of development of production reached in the given period and on the
resources at the disposal of socialist society. A steady rise in consumption by
the people cannot be secured without a continuous growth of production.
Uninterrupted growth of production not only ensures the creation of the output
necessary to satisfy the growing requirements of society, also stimulates the
emergence of new requirements. In turn, the steady growth of the material
and cultural needs of the working people and of their purchasing power is a
necessary condition without which production cannot continuously advance.
Thanks to the systematic increase in the purchasing power of the population, a
steadily expanding effective demand arises for the output from socialist
industry and agriculture.
In socialist economy, the basic contradiction of capitalism betweenthe
social character of production and the private capitalist method of
appropriationhas been abolished. Consequently the inherent contradiction of
capitalism between production and consumption, which reflects the
fundamental contradiction of the bourgeois system, is unknown to socialism.
The basic economic law of socialism provides the opportunity for harmonious
co-ordination of the growing purchasing power of the population with the
simultaneous growth of production. Under capitalism the low level of
consumption, and of the purchasing power of the masses of the people,
inevitably hinders the growth of production and lags behind it. Consequently
economic development takes place with interruptionsmoving from boom to
crisis and from crisis to boom. Thanks to the systematic increase in
consumption by the people, socialist society is insured against crises of
overproduction and consequently is able to expand production continuously.
The non-antagonistic contradiction arising in the course of development
of socialist society between the level of socialist production achieved at any
particular time and the rapidly growing needs of the masses is solved in a
planned way by increased production, which leads to a rise in consumption by
the working people and a fresh increase in requirements, calling for a further
expansion of production.
The development of socialist production does not consist merely in
quantitative expansion. The continuous growth of socialist production requires
constant perfecting of production methods and a steady increase in the
productivity of social labour, enabling prices to be systematically lowered and
the quality of output improved, which is of great importance in satisfying the
requirements of the working people. All this is impossible without constantly
raising the technical level of production. Therefore the development of the
highest techniques is the necessary condition for the continuous growth and
perfecting of socialist production.
The basic economic law expresses the essence of socialist relations of
production and determines the chief processes of the development of the
socialist method of production. Other economic laws reflect particular essential
aspects of the socialist relations of production and determine particular
processes of the development of the socialist method of production. The basic
economic law plays the leading role in the system of economic laws operating
in socialist society. Thus, the requirements of the basic economic law
determine the character of the national-economic proportions which are
established on the basis of the law of planned, proportional development of the
national economy; the steady rise in the productivity of labour serves as the
chief means of ensuring an uninterrupted growth of socialist industry; the
satisfaction of the growing material and cultural requirements of the working
people is brought about by means of the law of distribution according to work,
etc.
Each law is not only in a state of definite interaction with the basic
economic law, but also with other laws of socialist economy. Thus, for example,
the proportion among the different branches of industry established on the
basis of the law of planned, proportional development of the national economy
depends on the level of productivity of labour in these branches. In its turn,
one of the extremely important conditions of the rise in productivity of labour is
the fulfilment of the requirements of the law of distribution according to work.

The Basic Economic Law of Socialism and the Development

of Socialist Production

The operation of the basic economic law of socialism creates an

opportunity for a continuous growth of production, immeasurably more rapid
than under capitalism. Soviet society, relying on the basic economic law of
socialism and making skilful use of it, increases year by year the mass of
material goods produced in the entire national economy. Socialist industry
steadily follows a rising curve, without any falls or industrial crises.

In 1939 the output of large-scale industry in the U.S.S.R. was 552 per cent of the 1929
level, while in the United States the level of industrial output compared with 1929 was only 99
per cent, in Britain 123 per cent, and in France 80 per cent. The rise of industry in the U.S.S.R.
was temporarily interrupted owing to the 1941-5 war; after the war the rise was resumed. In
spite of the colossal destruction suffered by Soviet national economy in the war years, the pre-
war level of production in the U.S.S.R. was soon considerably exceeded. As a result of this, the
output of large-scale industry in the U.S.S.R. in 1954 was 18 times greater than in 1929. The
industrial output of the United States marked time between 1929 and 1939, then it rose
because of the increase in war production and the armaments race, and in 1954 it was a little
more than twice the 1929 level. Britains industrial output in 1954 was only 72 per cent greater
than in 1929, that of France 14 per cent greater.

The basic economic law of socialism is inseparably linked with the law of
the priority development of industries producing means of production, that is to
say their relatively more rapid development compared with that of industries
producing consumer goods. This economic law of expanded reproduction is of
special importance for socialism. Heavy industry with engineering as its core is
the chief source of the steady rise of socialist industry as a whole. The priority
growth of heavy industry is the essential condition for technical progress
throughout the national economy, for raising the technical equipment of social
labour and, consequently, for improving production on the basis of the highest
techniques. Without the priority development of heavy industry, which supplies
all branches of the national economy with equipment, machinery, fuel and
energy, it is impossible to expand systematically the industries producing
articles of consumption and to ensure satisfaction of the growing requirements
of the working people.
The priority growth of the production of means of production is the most
important prerequisite for a rise in labour productivity. The chief lever for
raising the productivity of labour is the introduction into industry of advanced
techniques and ever more perfect instruments of labour produced by heavy
industry.
The priority development of the production of means of production,
heavy industry, is a vitally important condition for ensuring the economic might
and defensive capacity of the country. Marxist political economy rejects the
vulgarised, narrow consumers approach to the basic economic law of
socialism. This anti-Marxist approach finds expression in ignoring the
determining role of production in relation to consumption, in denying the
necessity for priority growth of the production of means of production under
socialism, and in the assertion that in the conditions prevailing under socialism
it is necessary that both departments of social production should develop
equally or that industries producing consumer goods should develop even more
rapidly than industries producing means of production.

In connection with the measures recently taken for increasing the

output of consumer goods some comrades are guilty of confusion in the
question of the rate of development of heavy and light industry in our
country. Relying on incorrect conceptions and a vulgarised interpretation
of the basic economic law of socialism, these pseudo-theoreticians try to
 prove that at some stage of socialist construction the development of
heavy industry ceases to be a main task and that light industry can and
should precede all other branches of industry. This is a deeply mistaken
view, alien to the spirit of Marxism-Leninism. (N. S. Khrushchev, On
increasing the output of livestock products. Report to the Plenum of the
Central Committee of the C.P.S.U., January 25, 1955).

A revision of the Marxist-Leninist theses on the priority development of

the production of means of production would in fact mean a reduction of heavy
industry, which would inevitably lead to weakening all branches of the national
economy, lowering the living standards of the working people, and undermining
the economic might and defensive capacity of the Soviet Union. The priority
development of heavy industry serves as the basis for a sharp rise in
agriculture, for a further development of the light and food industries.
The basic economic law of socialism, which expresses the radical
advantages of the socialist over the capitalist system, provides objective
possibilities for the Soviet Union to overtake and surpass the chief capitalist
countries in economic respects, i.e., as regards the extent of output per head
of the population. The accomplishment of this task requires expansion of
capital construction, continuous improvement of the organisation
industry, rational use of all industrial resources and a systematic rise in the
productivity of labour in all sectors of socialist economy.
Socialist relations of production provide wide scope for technical progress
and, compared with capitalism, considerably extend the possibility of applying
the most up-to-date techniques in all branches of the national economy. Under
socialism, as already stated, new. machines are introduced whenever they
provide an economy of social labour, lighten labour, make possible the
introduction of new forms of production and promote the growth of the welfare
of the people.
Disproportions and periodic interruptions in technical development,
connected with the cyclic character of the development of industry and the
narrow markets, are natural to capitalism. Socialism, on the contrary, is
characterised by the continuous perfecting of technique on a scale covering the
whole of the national economy.
The higher the level of technique and the organisation of production, the
greater are the means at the disposal of socialist society for satisfying the
growing needs of the working people. The socialist economic system creates a
direct interest of the working people in increasing production and applying the
most advanced techniques on an extensive scale. In turn, this interest of the
people in developing socialist production is a constant factor in developing the
creative initiative of the broad masses, aimed at improving production in every
possible way. This is the greatest factor in the continuous growth of the
socialist economy.

The Basic Economic Law of Socialism and the Growth of the

Welfare of the Working People
 The basic economic law of socialism reflects the organic unity of aim of
socialist production and the means to achieve this aim, the direct dependence
of the increase in national consumption upon the growth of production, upon
the productivity of social labour. Only socialism converts social labour into a
source of continuous rise in the welfare of the people. In socialist society the
priority development of the production of means of production serves as the
basis for a rise in national consumption, whereas under capitalism it leads to
increased unemployment and the impoverishment of the working people.
Socialism has eliminated the narrow limits of consumption by the working
masses, which are typical of the bourgeois system and are determined by the
drive of the capitalists for the maximum profit.
The continuous growth of socialist production is the secure foundation for
the constant rise of the material and cultural level of life of the people. In
socialist economy there is an unfailing increase in the mass of products created
by work for oneself, and used for the personal consumption of the working
people; the mass of products created by work for society, and used to expand
production and to satisfy material and cultural requirements of the working
people, also increases.
In the U.S.S.R. there is a steady growth of real incomes and a systematic
increase of the quantity of consumer goods purchased by the population at
falling prices.

The real incomes of the working people in the U.S.S.R. (that is, incomes after taking
into account changes in prices) increased per wage-earner, in 1954 compared with 1913, in the
following way: workers approximately 6-fold (taking account of the elimination of
unemployment), and peasants approximately 6.5-fold.
The volume of output of consumer goods in large-scale industry had increased over
1913, in comparable prices, 7.6-fold by 1940 and 16-fold by 1954.

A constant factor in the growth of real incomes of the working people of

the U.S.S.R., is the large-scale free cultural services and amenities provided by
the Soviet State. The Soviet Union has a system of social insurance and social
welfare inaccessible to capitalism.
Socialism means a continuous improvement in the working and living
conditions of the masses of the people. The supply of the everyday needs of
life is transformed from a means of enriching the capitalists into the means of
raising the standard of living of the people. Socialism provides a steady
improvement of housing conditions. In the U.S.S.R., thanks to the public
ownership of the main housing property in the towns and to the large-scale
State housing schemes, badly constructed houses are being increasingly
replaced by new and comfortable homes.
In many bourgeois countries medical assistance, being a private matter,
has to be paid for at a high price and is therefore little accessible to the broad
masses of the people. In the U.S.S.R. an all-round State health service has
been created which provides the population free with all forms of medical
assistance.
Socialism gives broad scope for the cultural growth of the working people
and for the development of their abilities and talents, of which there is an
inexhaustible fount in the people. Under capitalism the working people have
access to education only within the narrow limits dictated by the interests of
capitalist exploitation. Socialism, on the contrary, provides conditions for an
ever fuller satisfaction of the rapidly growing educational, cultural, scientific
and artistic requirements of the masses.

Formerly, [Lenin said in 1918] mans entire intellect, all his

genius, worked only to give some the entire wealth of technique and
culture, and to deprive others of what they needed most-education and
development. Now, however, all the marvels of technique, all the
achievements of culture, will become the possession of the whole people,
and mans intellect and genius will never again be turned into a means of
coercion and exploitation. (Lenin, Concluding Remarks at the Close of
the Third All-Russian Congress of Soviets, Collected Works, Russian
edition, vol. XXVI, p. 436.)

In the U.S.S.R. satisfaction of the growing cultural requirements of the

people is secured by extensive, measures in the sphere of cultural
development: free tuition and improvement, of skill, student stipends,
systematic extension of the network of schools: cultural and educational
institutions, libraries, clubs, increased publication of printed materials, etc.

The number of people participating in all forms of study in the U.S.S.R. increased from 8
million in 1914 to over 50 million in 1954. At the same time, the number of scholars in
secondary schools (the 8th to 10th classes) and in institutions for secondary technical
education increased from 02 million in 1914 to 3.6 million in 1940 and 7.8 million in 1954. The
number of students in higher educational institutions increased from 117,000 in 1914 to
812,000 in 1940 and to 1,732,000 in 1954. The number of teachers and tutors in all
educational institutions, together with those in childrens institutions, amounted to more than 2
million in 1954, nearly ten times as many as in 1914.

Relying on the basic economic law of socialism, the Communist Party and
the Soviet State are pursuing a policy which ensures a steady rise in the
welfare and cultural level of the masses.

The Economic Role of the Socialist State

The objective economic laws operating in the economy of socialism are

recognised and utilised by the Socialist State in the practice of building a
communist society. The success of economic policy depends above all on the
extent to which it correctly conforms to the requirements of economic laws.
The character of the Socialist State is determined by the economic basis
of socialism. The political power of the working people, headed by the working
class, corresponds to the socialist economic system and the social ownership of
the means of production by the working people. The policy of the modern
bourgeois State reflects the interests of the capitalist monopolies, is directed
towards increasing their profits and is hostile to the masses of the people. The
policy of the Socialist State, on the contrarythe State of workers and
peasantsexpresses the fundamental, vital interests of the working people and
enjoys the unlimited support of the masses of the people.
The new economic role of the Socialist State, unknown in history until
this time, is determined by the socialist relations of production. The Soviet
State is the owner of no less than nine-tenths of all the means of production in
the country. Thanks to the total predominance of social ownershipState
ownership and co-operative collective farm ownershipof the means of
production, the State has been enabled, on the basis of the economic laws of
socialism, which are consciously applied in its activity, to exercise planned
guidance of the national economy and to fulfil the function of organiser of that
economy. Such a role is beyond the reach of a bourgeois State, because of the
private capitalist ownership of the means of production and the spontaneous
character of the economic development of capitalist society.
The basic economic law gives rise to the need for the Socialist State to
be constantly concerned to satisfy to the full the steadily growing requirements
of the people on the basis of rapid development of the productive forces. The
activities of the Socialist State are devoted to securing an all-round
improvement of the life of the working people.
The Socialist State takes account of the many and varied requirements of
society and, in accordance with these growing needs, develops and perfects
production, organises the introduction of advanced techniques into all branches
of the national economy, a steady increase in the productivity of social labour,
carries out capital construction and the location of industry, and ensures the
increase of socialist accumulation. The Soviet State carries out a system of
measures to produce an abundance of industrial and food commodities in the
country. For these purposes it develops heavy industry to the fullest extent and
on this basis ensures a powerful rise of agriculture and of the production of
goods for mass consumption.
In conformity with the real conditions, both internal and international,
the State lays down at each stage the concrete tasks of economic construction,
establishes the direction and rate of development of the national economy and
improves the method of conducting it. It takes into account not only the past
results but also the anticipated tendencies of future development, and
exercises its functions as economic organiser on the basis of scientific
foresight. Advanced social scienceMarxism-Leninism-is the theoretical
foundation of the many-sided activity of the Socialist State.
The economic, organising, cultural and educational work of the Soviet
State covers all aspects of the life of socialist society. The Soviet State
exercises planned guidance and management of State enterprises in every
branch of the economy. The State and its organs appoint the heads of State
enterprises, groups of such enterprises and entire branches of the economy,
and supervise their work. The State plans the national economy of the country:
it determines in a planned way the volume, structure and rate of growth of
industry, and of home and foreign trade; it fixes the prices of commodities. and
the planned costs of production, the level of wages of workers and other
employees and distributes materials, labour and financial resources, etc. The
Soviet State directs the economic life of the collective farms and guides them
through the medium of the local Soviets, M.T.S., and the elected bodies in the
agricultural artel; in doing so it takes account of the special features of the
collective farms as co-operative undertakings. It helps in every way to
strengthen the alliance of the working class and the peasantry, and extend the
economic links between town and country.
 The Soviet State guarantees to citizens the real exercise of such
important rights as the right to work and leisure, to education, and to material
security during loss of earning capacity and in old age.
The Soviet State guides education and the training qualified personnel,
promotes the development of, advanced science and art and the practical
application of scientific and technical achievements.
The strength of the Soviet machinery of State lies in its ties with the
mass of the people. It follows from the nature of the socialist system that
centralised State guidance must be combined with local initiative and with
practical allowance for local peculiarities.
The most important principle in guidance of the economy by the State is
the unity of economic and political work.

In practice, politics and economics are indivisible. They exist together

and act together. And he who thinks that in our practical work he can separate
economics from politics, and intensify economic work at the price of belittling
political work or, on the contrary, intensify political work at the price of
belittling economic work, is bound to find himself in a blind alley. Stalin,
Shortcomings in Party Work and Measures for Eliminating the Trotskyists and
other Double-Dealers, Russian edition, 1938, p. 26.

The Communist Party is the leading and organising force of the Socialist
State, giving direction to the activity of all State bodies and to voluntary
organisations of the working people. The Party lays down directives for
compiling national economic plans, and the most important national economic
measures which are of vital significance for the country as a whole. The Party,
being closely linked with the working masses, rallies the workers, collective
farmers, and intelligentsia for the fulfilment of economic and political tasks,
educates the masses and raises their Communist consciousness. The policy of
the Communist Party and the Soviet State, aimed at satisfying new and timely
requirements in the economic development of society, plays an enormously
progressive role.
The development of the socialist mode of production takes place in the
course of a struggle of the new against the old, of that which is growing
against that which is dying, of the progressive against the backward, by
surmounting contradictions and difficulties. Lenin pointed out that under
communism antagonisms disappear but contradictions remain. In socialist
society these contradictions are non-antagonistic, since they are not connected
with opposed class interests, and are overcome in the course of communist
construction.
There are no exploiting classes in socialist society, but there are
backward elements, imbued with tendencies and habits from the age of private
property, opposed to the development of the new progressive tendencies in the
socialist economy. There are still embezzlers of public property and
bureaucratic elements who ignore the needs of the people. The survivals of
capitalism in the consciousness of man have not yet been fully overcome. The
Soviet State, guided by the Communist Party, encourages the initiative of the
working people and lends support to progressive tendencies in all spheres of
social life. The Soviet State assiduously supports the young shoots of what is
new, strengthens them, and facilitates the diffusion of advanced production
methods; it wages a persistent struggle against all forces of inertia, and all
manifestations of backwardness, stagnation or routinism, which hinder the
rapid development of socialist production.
One of the main forms of struggle of the new against the old in socialist
society is criticism and self-criticism, which constitute a powerful motive force
in the development of socialist society. Criticism and self-criticism make it
possible to uncover and eliminate shortcomings and difficulties in work, and to
eradicate all signs of bureaucracy, by enlisting the participation of the masses
of the people. They enable new means of accelerating the rates of economic
development to be discovered, and in this way help to overcome the
contradictions of socialist society.
Besides the internal non-antagonistic contradictions of socialist society,
there exists the external antagonistic contradiction between the countries of
the socialist camp and the forces of imperialism. This is expressed in the fact
that imperialist, aggressive circles endeavour to unleash war against the
U.S.S.R. and the Peoples Democracies and carryon undermining work in those
countries. From this there arises the necessity to strengthen to the utmost the
economic might and defence capacity of the U.S.S.R. and the Peoples
Democracies.
Arising from the Leninist thesis of the possibility of peaceful co-existence
between the socialist and capitalist systems, the Soviet State consistently
pursues a policy of peace, and expands peaceful construction and foreign trade
relations with all countries. It strengthens economic co-operation with the
countries of the camp of democracy and socialism, which represents the new,
socialist type of relations between nations. The Soviet State of workers and
peasants, utilising the advantages of the socialist economic system and relying
on economic laws, is directing the development of the U.S.S.R. along the road
to communism.

BRIEF CONCLUSIONS
(1) The economic laws of socialism are objective laws, independent of
the will and consciousness of man. They express the relations of fraternal co-
operation and socialist mutual aid of workers freed from exploitation. The
economic laws of socialism do not operate as a blind and destructive force:
they are recognised and utilised by socialist society. The Communist Party and
the Socialist State base their economic policy on the economic laws of
socialism.
(2) The basic economic law of socialism determines all the main aspects
and main processes of development of the socialist mode of production, the
purpose of socialist production and the means to achieve this purpose. The
essential features and requirements of the basic economic law of socialism are
the securing of the maximum satisfaction of the constantly rising material and
cultural requirements of the whole of society, through the continuous
expansion and perfecting of production on the basis of higher techniques.
(3) In socialist economy the growth of requirements (the purchasing
power) of the masses is the motive force of socialist production and drives it
forward. The continuous growth of socialist production is the material
foundation for the steady growth of consumption by the people and the growth
of new requirements. The priority development of the production of means of
production is the essential condition for the continuous growth of socialist
production. Socialism ensures the steady development of advanced techniques,
essential to the continuous growth of perfecting the socialist production and
the ever fuller satisfaction of the growing needs of the working people.
(4) Corresponding to the constantly increasing mass of products for
oneself and products for society, the real incomes of the working people are
constantly raised. Socialism means a constant improvement in the working and
living conditions of the people. It opens up the fullest opportunities for cultural
development and makes the entire wealth of technique, science and culture the
possession of the whole people.
(5) Expressing the vital interests of the people, the Socialist State guided
by the Communist Party develops on an ever-increasing scale its economic,
organising, cultural and educational activity, directed towards securing a
continuous growth of production and a steady rise in the level of welfare and
culture of the people. The development of the socialist mode of production
proceeds through the surmounting of contradictions and difficulties. Relying on
scientific knowledge of objective economic laws and making use of them, the
Socialist State assures the victory of the new and progressive over the old in
all spheres of the economy, and directs the development of society along the
road to communism.
 CHAPTER XXX

THE LAW OF PLANNED

PROPORTIONAL DEVELOPMENT OF
THE NATIONAL ECONOMY

The Necessity for Planned Development of the Economy in a

Socialist System.

As is known, every social formation requires for its existence and

development definite proportions in the distribution of labour and means of
production among the different branches of the national economy. Under
capitalism the essential proportions in the development of production are
arrived at spontaneously, through constant fluctuations, disproportions and
periodic crises. In directing their capital into one or other branch of production,
capitalists are guided by such spontaneous barometers of economic life as the
fluctuations of market prices, rates of profits, rates of interest, quotations of
shares, etc.
In socialist economy, as a result of the socialisation of the means of
production, the spontaneous barometers of economic life are abolished.
Socialist society cannot develop blindly and by drifting along of its own accord.
In socialist conditions the necessary proportions in the distribution of means of
production and labour-power between branches of the economy can only be
achieved in a planned way. Planned development of socialist economy is made
necessary and possible by social ownership of the means of production. Engels
stated that the passing of the means of production into social ownership makes
possible socialised production upon a predetermined plan. (Anti-Dhring,
English edition, 1954, p. 395.) In contradistinction to private ownership of the
means of production, which disunites the commodity producers and gives rise
to competition and anarchy in production, social ownership unites a multitude
of enterprises into a single national economic whole, subordinated to a single
aim arising from the requirements of the basic economic law of socialism.
Large-scale socialised production in a socialist society can develop only through
Ii general plan, which provides unity of action for the whole of society and
ensures the necessary proportions in the development of individual industries
and enterprises and of the national economy as a whole.
Demonstrating the need for the planned development of socialist
economy, Lenin pointed out that the economy cannot be run without a long-
term plan, and that one of the gigantic tasks of the socialist revolution was

the transformation of the whole of the State economic mechanism

into a single, huge machine, into an economic organism that will work in
such a way as to enable hundreds of millions of people to be guided by a
single plan. (Lenin, Selected Works, I2-vol. edition, vol. VII, p. 287.)

Capitalism is inconceivable without competition and anarchy in

production, and the consequent waste of social labour; and in the same way
socialism is inconceivable without planned development of the national
economy, which enables social labour and its products to be utilised rationally
and economically.
Thus social, socialist ownership of the means of production, and large-
scale socialist production both in industry and in agriculture, make the planned,
proportional development of the whole economy objectively possible and
necessary.
The planned, proportional development of the national economy is an
economic law of socialism.

The Basic Features and Requirements of the Law of Planned

Development of the National Economy

The law of planned, proportional development of the national economy is

the regulator of socialist industry; distribution of means of production and
labour-power among the various branches of socialist economy is effected on
the basis of this law. This law requires: planned conduct of the national
economy, proportional development of all branches of socialist economy, the
fullest and most effective use of the countrys material, labour and financial
resources.
The law of planned development of the national economy signifies, above
all, the need for due proportion between the parts and elements of the national
economy. V.I. Lenin pointed out that planning means constant, deliberately
supported proportionality.
But the tasks on which the proportions planned for the national economy
must be dependent are not included in the law of planned development. The
nature of the proportions in socialist economy is determined by the
requirements of the basic economic law of socialism.

The law of planned development of the national economy can yield

the desired result only if there is a purpose for the sake of which
economic development is planned. . . . This purpose is inherent in the
basic economic law of socialism. Stalin, Economic Problems of Socialism
in the U.S.S.R., 1952, English edition, p. 46.)

Consequently, the law of planned, proportional development of the

national economy plays the part of a regulator of production in socialist
economy in accordance with the requirements of the basic economic law of
socialism.
 The way in which the requirements of the basic economic law of
socialism are met at each particular stage depends on the level of development
of the productive forces which has been reached, the material resources which
are available, and the internal and external situation of the socialist country.
The proportions in the national economy are fixed in accordance with these
factors and on the basis of the law of planned proportional development.
The major proportions in the development of the national economy
include in the first place a correct relationship between the production of
means of production and the production of consumer goods. As was stated
above, for continuous growth of production on the basis of a rising technical
level branches producing means of production must develop more rapidly than
branches making consumer goods. The development of heavy industry is a
prerequisite for technically equipping all branches of the national economy,
including the light and food industries, which produce consumer goods, and for
their continuous growth.
A correct relationship between the two departments of social production
therefore requires above all priority development of branches producing means
of production, especially heavy industry with engineering as its core. Further, it
requires growth of the consumer goods branches sufficient to satisfy the
continuously increasing needs of the mass of the people to the maximum
extent possible at the given level of productive forces.

The development of those branches of industry which produce articles of mass

consumption is realised on the basis of the development of heavy industry in the U.S.S.R.
During the period from 1925 to 1954 the production of means of production as a whole
increased more than 60 times and the production of consumer goods 14 times. In 1954 the
production of means of production from the whole of industry increased about 3.5 times
compared with 1940 and the production of consumer goods almost doubled. The level reached
in the production of consumer goods and the rate of its growth are still not in accord with the
increased needs of the population for these goods. Real conditions have been established for a
rapid increase in the production of consumer goods on the basis of the success achieved in
developing heavy industry.
In view of this, the Communist Party and the Soviet State, on the basis of priority
development of heavy industry, are putting into effect a large programme for the rapid growth
of agriculture and the light and food industries, so that within a short period the production of
consumer goods will be considerably increased and the material conditions and cultural level of
the Soviet people will be further improved.

Fixing correct proportions between industry and agriculture is of major

importance for planned development of the national economy. The proportions
in the development of industry and agriculture must ensure, on the One hand,
the leading position of industry, which equips agriculture with advanced
technique and supplies manufactured goods to the countryside, and on the
other hand, the further growth of State farm and collective farm production, so
as to supply the urban population with food and industry with raw materials.

During the period of its existence, socialist agriculture has been very successful on the
basis of the collective farm system. But the rate of growth of agriculture is insufficient for
satisfying societys growing needs for agricultural products. From 1940 to 1952, industrial
output increased 2.3-fold but the gross output of agriculture in comparable prices increased
overall by only 10 per cent. Important branches of agriculture such as grain production, live-
stock farming, and the production of potatoes and vegetables, are particularly behind. As a
result an obvious disparity has appeared between the increased need of the population for
grain, meat, dairy products, vegetables, fruit, etc., on the one hand, and the level of
agricultural production on the other.
The lag of agriculture behind the growing needs of society has made it impossible to
increase consumption to the level it could have reached at the present stage of the countrys
industrial development. The great development of heavy industry has established conditions for
a steep advance in socialist agriculture. It has become possible and necessary to speed up the
rate of growth of agricultural production in every way. In view of this, the Plenum of the Central
Committee of the Communist Party of the Soviet Union in January 1955 set the following task:
to achieve in the next five or six years a gross harvest of grain in the country of not less than
10,000 million poods annually, and to double, or more than double, the output of the chief
agricultural products, so that the growing needs of the population. for foodstuffs are satisfied in
full and the light and food industries are supplied with the necessary raw materials.

Industry and agriculture are closely interdependent, as are, in their turn,

the separate branches of industry and agriculture. Because of this, the
uninterrupted development of production is possible only if there are correct
proportions between the separate branches within industryfor instance,
between extractive and processing industryand within agriculture, as well as
between industry and agriculture as a whole. For example, the lag in livestock
farming over a long period has held up the further development of the light
and food industries, and in turn the growth of livestock farming was retarded
by insufficient fodder supplies, by the lag in grain farming. The Soviet State is
getting rid of this disparity by a decisive improvement in livestock farming, in
its sources of fodder supplies and in grain farming.
If the continuously rising demand of the working people for agricultural
produce and manufactured goods is to be met smoothly and in a planned way,
the supply of commodities for personal consumption must correspond to the
rising money incomes of the population at the given price-level, and there
must be the right proportions between the growth of output of consumer goods
and the development of trade turnover.

As a result of the considerable increase in recent years of the real wages of workers and
other employees and also of the incomes of collective farmers, the demand of the working
people for various commodities is developing much more rapidly than the increase in the
output of mass consumer goods and food products. The elimination of this disparity is the
purpose of the programme for a steep rise in agriculture and an increase in the output of
manufactured commodities and food, on the basis of a further development of heavy industry,
which programme was adopted and is being successfully fulfilled by the Communist Party and
the Soviet State.

Socialism has abolished the antagonistic contradiction between

accumulation and consumption which is inherent in capitalism. In accordance
with the requirements of the basic economic law of socialism, the correct
proportions between accumulation and consumption are those which enable
both the continuous growth of socialist production and the systematic
improvement of the material welfare and the cultural level of the mass of the
people.
The proportional distribution of resources among the different branches
of the national economy largely depends on how far these resources are
rationally utilised. If, for example, the average expenditure of metal per lathe
is reduced, then the total requirements in metal for the machine-tool industry
is reduced, or the output of machine tools is increased. This in turn leads to a
change in the proportions between metallurgy and engineering. Rational and
economical utilisation of resources is one of the conditions which ensure the
constant and rapid growth of industry.
Proportional development of the national economy implies the rational
location of socialist production. Industry must be brought as near as possible to
sources of raw materials and to the consuming regions, and the economy of
each region must be developed as a whole, taking its special features into
account, correctly co-ordinating branches of production, and using local
resources as fully as possible. Irrational and lengthy hauls by rail and water
must be reduced. The national republics must be developed economically and
culturally.
Socialist location of industry rests on the countrys division into economic
regions. Division into economic regions is a planned division of the whole of the
countrys territory into separate large regions in accordance with their
economic and natural features.
As already stated, thanks to the advantages of the socialist system,
considerable achievements have already been obtained in the rational location
of industry in the U.S.S.R. These advantages, however, are by no means
utilised to their full extent and consequently there are shortcomings in the
location of industry which give rise to partial disproportions in the national
economy, hinder a more rational and effective use of local resources and result
in superfluous long hauls.

Thus the disproportion between the production and consumption of various sorts of
ferrous rolled metal in the South, the Urals and Eastern Siberia inevitably results in massive
hauls of ferrous metals. The lag of coal extraction behind coal requirements in the European
part of the U.S.S.R. means that coal has to be transported over enormous distances.
About 2,000 wagon loads of uncleansed wool are annually transported from Siberia and
Central Asia to the wool-cleansing works situated in the Ukranian S.S.R., but some 500 wagon
loads of cleansed wool are annually sent from the Ukraine to Siberia, Central Asia and the Far
East.

The elaboration of a scientifically based plan for the development and

location of the major branches of Soviet industry during a period of ten to
fifteen years has become vitally necessary.
In the conditions of the transition from socialism to the higher phase of
communism proportions are also required in developing the national economy
which will further strengthen and develop socialist production and gradually
establish the material production basis for communism and an abundance of
goods. In a situation in which a number of imperialist powers are carrying out
an armaments drive, while aggressive imperialist circles are developing plans
for war against the countries of the socialist camp, the economic proportions in
socialist economy must provide the socialist country with a powerful economic
base in the event of a hostile attack from abroad. A rapid growth of socialist
industry and collective farm production is a most important prerequisite for
strengthening the economic independence and defensive capacity of the
U.S.S.R.
The existence of a unified and powerful socialist camp makes essential
the planned co-ordination of the economy of all the countries in this camp.
Economic collaboration and mutual assistance between the U.S.S.R. and the
Peoples Democracies makes it easier to solve problems of socialist
construction, leads to an increase in these countries economic independence
of the capitalist world and a strengthening of their defensive capacity and
promotes the building of communism in the Soviet Union.

The Law of Planned Development of the National Economy

and Socialist Planning

The requirements of the law of planned development of the national economy

are put into effect by the Communist Party and the Socialist State, by means of
plans which organise and direct into useful channels the creative activity of the
mass of working people. Planned management of the national economy is a
very important feature of the work of the Socialist State in its function as
economic organiser.

By developing economy in a planned way, the Socialist State is

able to ensure uninterrupted, rapid and all-round growth of production
and. maximum satisfaction of the needs of the people. In the hands of
the Soviet State, planning is a mighty force, organising and guiding the
labour of millions of people. (N. A. Bulganin. The Tasks of the Further
Growth of Industry, Technical Progress and Improvement of the
Organisation of Production. Report of the Plenum of the C.C. of the
C.P.S.U., July 4, 1955.)

Socialist planning is built up on a strictly scientific basis. It requires

constant generalisation of the practical experience in building communism and
the utilisation of all the achievements of science and technology. Managing the
national economy in a planned way means being able to anticipate. Scientific
foresight is based on knowledge of objective economic laws and on the needs
of development in the material life of society which have matured.
The principal prerequisite for the correct planning of socialist economy is
that the law of planned development of the national economy must be
mastered and skilfully utilised.
The law of planned development of the national economy must not be
confused with the planning of the national economy carried out by the
appropriate bodies of the Socialist State, nor with the annual and five-year
plans of national economic development. The law of planned development of
the national economy is an objective economic law. It enables State institutions
to plan social production correctly. But possibility must not be confused with
reality. To turn possibility into reality it is necessary to learn how to apply the
law of planned development, and it is necessary to compile plans which fully
reflect the requirements of the law.
In practice, plans do not always fully reflect the requirements of the law
of planned development of the national economy. When these requirements
are not met, the law of planned development of the national economy makes
itself felt by the appearance of disproportions in individual parts of the
economy, and by interruptions in the normal process of production and
circulation. If it is planned, for example, to produce a certain number of cars,
but the plan does not provide for production of the necessary amount of sheet
steel, this may lead to under-fulfilment of the car production plan. Similarly,
the plan for smelting pig-iron will not be effective unless it is backed by the
corresponding production of coke.
Planning bodies have to take the requirements of the law of planned
development correctly into account in compiling plans, They must not permit
disproportions to appear, and if disproportions do appear the planners must
take steps to get rid of them in time. Material, financial, and labour reserves
are of great importance for the uninterrupted development of the national
economy. They make it possible to get rid of disproportions quickly when they
appear in different parts of the economy, or to prevent their appearance: they
make flexible switching of resources possible.
Planning the national economy can therefore be successful, and can
ensure its proportionate development and uninterrupted growth of production,
provided that it correctly reflects the requirements of the law of planned
development of economy and conforms in all respects to the requirements of
the basic economic law of socialism.
Socialist planning makes use also of the other economic laws of
socialism. Thus, making use of the economic law of distribution according to
work done is an essential condition for planned management of the economy.
This law provides material incentives for workers to increase labour
productivity and is one of the prime movers of socialist production.
Socialist planning presupposes the need to make use of economic
instruments connected with the operation of the law of value: prices, money,
trade and credit. Cost accounting is an instrument of planned management,
and provides incentives to produce economically, to mobilise internal reserves,
to reduce the cost of output, and to increase the profitability of an enterprise.
Socialist planning requires a profound study and fullest utilisation of
modern achievements of science and technology at home and abroad for the
purpose of ensuring rapid technical progress in all branches of the national
economy, constant improvements in technology and a steady rise in the
productivity of labour.
The Communist Party and the Socialist State start from the requirements
of the economic laws of socialism, draw general conclusions from their
experiences of building the economy and of cultural development, and take
into account the whole complex of internal and external conditions in which the
country of socialism finds itself. On this basis they fix at each stage the most
important economic and political problems to be solved by the State plans. The
volume of output, the rate at which production is to expand in each branch of
the national economy, the amount of investment, the level of wages, etc., are
all determined on this basis.
Planned management of Soviet economy is carried out by the Councils of
Ministers of the U.S.S.R. and the Union Republics on the basis of directives
from the Communist Party. State plans are worked out on the scale of the
national economy as a whole, and also by branches and by individual
government departments, by republics, territories, regions, and economic
districts. Plans are worked out and their fulfilment is supervised by the State
Commission of the Council of Ministers of the U.S.S.R. for Long-Term Planning
(Gosplan U.S.S.R.), by the State Economic Commission of the U.S.S.R for
Current Planning (Gosekonomkomissiya U.S.S.R.), by Union and Republic
ministries, and by those local Soviets which have their own planning organs.
Socialist planning is constructed by co-ordinating long-term plans, which
embody the basic line of development over a period of years, with current
plans, which are specific work-programmes covering shorter periods. Long-
term plans include both five-year plans of national economic development and
plans which cover a longer period. Current plans include annual plans, and are
elaborated on the basis of the long-term plans. As socialist economy develops,
long-term planning assumes ever greater significance. V.I. Lenin pointed out
that it is impossible to work without having a plan intended for a lengthy
period and for achieving serious success. (V.I. Lenin, Report on the activity of
the Council of Peoples Commissars at the Eighth All-Russian Congress of
Soviets, Collected Works, Russian edition, vol. XXXI, p. 479.)
It is part of the task of the State Commission of the U.S.S.R. for Long-
term Planning to work out the Five-Year Plans, split up into separate years, and
also the long-term plan of development of the branches of national economy
and of the whole of the national economy over a longer period, ten to fifteen
years.
It is part of the task of the State Economic Commission of the U.S.S.R. to
work out, on the basis of the Five-Year Plans, the annual State plans of the
development of the national economy and the plans for the supply of materials
and technical equipment, split up into quarterly periods. Every works, mine;
State farm, M.T.S. and other State enterprise has its technical and production
financial plan, compiled on the basis of planned targets fixed by the State: this
is an overall plan of the production, technological, and financial work of the
enterprise concerned.
In the planned development of socialist economy, centralised planned
management of the economy, achieved by fixing the basic planning indices
centrally, has to be combined with affording local bodies the necessary
independence and initiative in planning production. In the work of planning it is
extremely great importance to take into account local conditions and specific
local features. A stereotyped approach planning which ignores these specific
features ignores also t requirements of the law of the planned development of
national economy. Excessive centralisation of planned management, and
attempts to plan everything from the centre down to the last detail, without
sufficient knowledge and consideration of local conditions and possibilities lead
to mistakes in planning, fetter local initiative and prevent the full utilisation of
local resources and of the tremendous reserves which can be found in different
branches of socialist economy and in different enterprises.
The special features of State planned management of collective farms
result from the nature of co-operative and collective farm property. Planned
management of collective farms by Socialist State rests on the independent
initiative of the mass of collective farmers. The initiative of the collective farms
and their members is one of the decisive factors in improving agriculture and in
making full use of the economic and natural conditions in every geographical
district and every collective farm.
A correct planning system presupposes that basic and decisive indices
and targets for agricultural production, and for deliveries of agricultural
produce to the State; are fixed for each region, territory and republic by the
central planning bodies. These assignments are fixed according to commodity
output, starting out from the need to ensure that the needs of the population
as regards food, and of industry as regards raw materials, will be satisfied.
Guided by the assignments for the delivery to the State of produce from
field cultivation and animal husbandry, the collective farms determine, at their
own discretion, the sizes of the areas sown to various crops and also the
productivity of animal husbandry and the number of the individual types of
livestock. The annual production plans, worked out by the boards of the
collective farms, are examined and adopted at general meetings of the
collective farmers.
Further improvement in socialist planning methods will require consistent
centralisation in planning basic and deciding indices, while at the same time
extending in every way the part played by local bodies, industrial enterprises,
and State and collective farms in planned management of production and
encouraging their initiative. It also presupposes a differentiated approach in
planning, suited to every particular economic region, agricultural zone,
enterprises and collective farm.
In planned management of the national economy, its key links must be
singled out. The plan singles out the most important branches, on which the
successful fulfilment of the whole national economic plan depends. The key
links of the Five-Year Plans are the branches of heavy industry, including
engineering, since they determine the development of all branches of industry
and the national economy as a whole. These branches have priority in the
allocation of means of production, labour-power, and money. The other
branches are planned to conform to the leading branches, so that the whole
economy will advance on this basis, and its component parts will be co-
ordinated as rationally as possible.
The law of planned, proportional development of the national economy
requires that the development plans of separate branches should be strictly co-
ordinated and inter-connected in a single economic plan.

The plans of the various branches of production must be strictly

co-ordinated, combined, and together made to constitute that single
economic plan of which we stand in such great need. (Lenin, Report on
the work of the Council of Peoples Commissars, delivered at the Eighth
All-Russian Congress of Soviets. Selected Works, I2-voL edition, Vol VIII,
p. 272.).

Economic plans embrace a definite range of indices, in both physical

terms (types and variety of output, etc.) and money terms (amount of output,
cost of production, revenue and expenditure, etc.). Physical and monetary
indices both include what are distinguished as qualitative indices (growth of
labour productivity, reduction in costs, profitability, improvement in the quality
of output, and efficiency of utilisation of the means of production such as
equipment, machinery, machine tools, raw materials, etc.). The main index in
agricultural production: is the maximum quantity of output per 100 hectares
(250 acres) of agricultural land, with the least expenditure of labour and means
of production per unit of output.
 The plan of development of the national economy is divided into the following sections:
the production programme for industry, agriculture; plan of transport and development of
communications; plan of capital construction work and of development and introduction of new
techniques; plan of State supplies for the national economy; labour and wages plan; plan of
trade turnover and deliveries; plan of social and cultural measures; plan of production costs in
industry; plan of the development of the national economy in each of the Union Republics and
economic areas; summarised section of the plan of national economy, including total indices of
the development of the national economy and the most important targets of separate branches
of industry. The final total index of the plan is the growth of the national income and the
relationship in it between the funds of consumption and accumulation. The planning of prices,
finances (the State Budget, credit and cash plans of the State Bank) and the planning of
foreign trade are a component part of State planning.
The plan of development and introduction of new techniques covers the largest assignments,
economically important on a nation-wide scale, for the mechanisation and automation of
production processes, the mastering of the production of new, machines and materials, for the
introduction of advanced technological processes and also the most important scientific
research, and designing and experimental work connected with new techniques.
The correct location of the productive forces, the complex development of economic
areas and the co-ordination of the plans of the national economy of the U.S.S.R. with the
economic plans of the Peoples Democracies assume ever-increasing importance in the field of
socialist planning.

The elaboration of a system of balances is one of the most important

methods by which correct national economic proportions are established, in
conformity with the requirements of the law of planned development of the
national economy. The Socialist State uses balances to lay down proportions in
national economic development, as expressed in physical and monetary terms,
to decide the amount of resources and to distribute them both among the
different branches of production and by types of output. In the balances,
resources available are set down against requirements, and this makes it
possible to discover bottlenecks in the economy and discrepancies in the level
and rate of development of different branches, and to adopt measures for
getting rid of the bottlenecks. The system of balances also makes it possible to
uncover additional resources from savings in materials and improved utilisation
of equipment. These resources are utilised to increase production and
consumption.
Balances are divided into material (physical) balances, balances in money
terms, and manpower balances.

Material balances show the relation between production and consumption of a particular
product or group of products, in physical terms. Material balances are compiled for the most
important products-there are for example balances of machine tools, ores, metal, cotton, and
other means of production; and also balances of Consumer goods, such as meat, sugar, butter,
etc.
Material balances are needed in compiling material supply plans, by which means of
production are allocated to all branches of the national economy, distinguished according to
ministries and government departments. These plans provide for the better utilisation of
equipment, raw materials, fuel, etc., through the introduction of progressive standards of
output.
Balances in money terms include the balance of money income and expenditure of the
population, the balance of the national income and its distribution, etc.
Manpower balances determine the labour and skilled labour requirements of the national
economy and the sources from which these requirements will be met.
 The most comprehensive balance is the balance of the national economy
which represents a system of economic indices characterising the basic
relationships and proportions in socialist economy. The balance of the national
economy includes the following basic balances: balance of the total social
product, balance of the national income, balance of labour.
Socialist planning reflects the requirements of the law of planned
development of the national economy, and is therefore directive in character.
State plans are not prognostications but directives, binding on governmental
bodies and defining the direction of economic development for the whole
country.
After State plans have been approved by the supreme bodies of the
Socialist State they acquire the force of law, and it is obligatory to carry them
out. Business managers are obliged to see that the plan is fulfilled by the
respective enterprises rhythmically and evenly, throughout each year and each
quarter, in variety of goods as well as in total gross output. They also have to
strive for a consistent improvement in the quality of output, and a reduction in
costs as fixed in the plan.
The most important, specific feature of socialist planning is that it
combines the ensuring of proportionality with a constant growth of socialist
production and technical progress. The proportions of the development of the
national economy established in the plan are not something rigid and
immutable. Socialist planning is practical and rallies people to get things done.
The plans give direction to the work of millions of people on a nation-wide
scale, and provide a clear perspective to the mass of working people, inspiring
them to great achievements in their work. The plan is the living creative work
of the mass of the people. The reality of production plans lies in the millions of
working people who are creating a new life.
Drawing up the plan is merely the point at which planning starts. Lenin
called the plan for the electrification of Russia (Goelro) a second party
programme, and emphasised that this programme will be improved,
elaborated, perfected, and modified, every day, in every workshop and in every
volost. (Lenin, Report on the work of the Council of Peoples Commissars,
delivered at the Eighth All-Russian Congress of Soviets. Selected Works, 12-
Vol. edition, vol. VIII, p. 275.) Every plan is made more precise, modified and
improved on the basis of the experience of the masses, taking into account the
actual way in which it is being fulfilled: for no plan can anticipate all the
possibilities latent in socialist society, which are disclosed only in the course of
the work. In the struggle to fulfil the plan in factory and mill, State farm and
collective farm, the creative initiative and activity of the masses comes into
play, socialist emulation develops, and new reserves for speeding-up economic
development are discovered. The work of rallying the mass of the people is
carried out by the Communist Party and, under its leadership, by State and
public organisations, the trade unions and the Young Communist League. The
active participation of the mass of the people in the effort to fulfil the plans for
developing the national economy is one of the most important conditions for
the successful fulfilment and overfulfilment of the plans, for accelerating the
rates of construction of Communist society.
Socialist plans can act as a rallying force only if the planning bodies are
guided by the new and advanced developments, which appear in the practical
work of building communism, and in the creative efforts of the mass of the
people. Calculations for plans must not use standards of labour outlay, use of
equipment, and consumption of fuel and materials, which are based on
arithmetical averages of the level of output achieved in production. They must
use advanced standards and output rates, abreast of the experience of the
more advanced enterprises and workers.
The Communist Party and the Soviet State struggle hard, on the one
hand, against attempts to compile underestimated plans, which do not spur
anyone on to greater efforts and take the bottlenecks as their criterion, and, on
the other hand, against speculative planning, which does not reckon with the
realistic possibilities of developing socialist economy. Socialist planning involves
a persistent struggle against tendencies to provincialism and departmentalism.
These anti-State tendencies are expressed in attempts to counterpose the
interests of a particular enterprise, district, or government department to the
general interests of the State.
Checking plan fulfilment is one of the most important aspects of planned
management of the national economy, and makes it possible to establish how
far the plan correctly reflects the requirements of the law of planned
development of the national economy, and how it is being fulfilled. It makes
possible the discovery in good time of any disproportions which exist, the
forestalling of the appearance of new disproportions in the economy, the
finding of new productive reserves, and the making of appropriate adjustments
in the national economic plans.
Planned management of socialist economy requires a unified system of
national economic accounting. V.I. Lenin taught that Socialism is accounting.
Planned socialist construction is inconceivable without correct accounting, and
accounting inconceivable without statistics. In socialist economy accounting
and statistics are intimately connected with the nation economic plan.
Statistical data on plan-fulfilment are essential material in compiling the plan
for the ensuing period. The socialist system of accounting and statistics makes
it possible to supervise the course of the fulfilment of the whole plan and of its
separate parts.

Advantages of Planned Economy

Socialist society possesses tremendous advantages over capitalism owing

to the planned development of the national economy.
In capitalist society, proportionality is fortuitous and the economy
develops cyclically, by means of crises which recur periodically. In contrast to
this, socialist economy develops uninterruptedly along an ascending curve and
at rapid rate, on the basis of proportions laid down by the Socialist State in
conformity with the requirements of the law of planned development of the
national economy and the basic economic law of socialism. Socialist economy is
free from economic crises, which break up the economy, do colossal material
damage to society, and periodically throw it back.

During the pre-war Five-Year Plans (a period of about thirteen years), the Soviet Union
made a leap which transformed it from a backward and agrarian country into an advanced and
industrial one. In this period the capitalist world experienced two economic crises (1929-33 and
1937), which were accompanied by tremendous destruction of the forces of production, a huge
growth in unemployment and acute further impoverishment of the mass of the people. In the
post-war period, socialist economy in the U.S.S.R. has continuously gone forward according to
plan, while the U.S.A. and a number of other capitalist countries experienced in these years the
1948-9 crisis, which caused a decline in output and an increase in unemployment. There was
also a crisis fall of production in the U.S.A. in 1953-4.

Unemployment is eliminated from socialist planned economy, so that the

whole of the labour-power of society is utilised. Capitalist economy inevitably
gives rise to unemployment, and the capitalists use unemployment as a means
of providing their enterprises with cheap labour-power.
Planned economy presupposes that the development of production will
be directed to satisfying the needs of the whole of society. Capitalists invest in
those branches in which the rate of profit is higher.
In socialist planned economy, science and technology develop in a
planned way, corresponding to the needs of the economy. Under capitalism,
technological development is governed by the law of competition and anarchy
in production. It takes place extremely unevenly, and this inevitably increases
disproportionality in production.
The profitability principle of private capitalism is governed by the aim of
acquiring the maximum profits. In contrast to this, the law of planned
development of the national economy, and socialist planning, ensure a higher
form of profitability: profitability considered from the point of view of the
economy as a whole.
Socialist planned economy frees society from the huge wastage of social
labour inherent in capitalist economy; it makes possible the most economical
and effective use of all resources, both those existing within enterprises and on
a national economic scale, continually uncovering new sources and reserves for
increasing production.
By planning, the Socialist State ties together the production of different
enterprises and brings about the most rational location of socialist production.
The experience of the Soviet Union in the field of planning the national
economy attracts the attention and interest of all countries of the world.
Bourgeois scientists preach planned capitalism, sowing illusions among the
working people that the monopolies, by eliminating competition, provide the
conditions for planning capitalist economy and eliminating economic crises.
But, as we have shown, the decisive prerequisite for planned management of
economy is the existence of social ownership of the means of production and of
the law of planned, proportional development of the national economy.
Capitalist society, however, is dominated by private ownership of the means of
production and the law of competition and anarchy of production. The
limitation of competition in the monopoly enterprises and industries is
accompanied by a sharp intensification of competition among the monopolies
themselves and also between the monopoly and non-monopoly enterprises and
industries. All attempts at planning the national economy and eliminating crises
of overproduction in the capitalist countries inevitably meet with failure. The
Soviet experience of planning the national economy is widely used in the
Peoples Democracies, which are successfully developing their economy on the
basis of State plans.
 BRIEF CONCLUSIONS
(1) Planned development of the national economy is made necessary and
possible by social, socialist ownership of the means of production. Planned,
proportional development of the economy is an economic law of socialism.
(2) The law of planned, proportional development of the economy is a
regulator of the distribution of means of production and manpower in socialist
economy, in accordance with the basic economic law of socialism. It requires
the planned management of the national economy, the development of all
branches of sodalist economy on a proportional basis, the fullest and most
effective use of material, labour and financial resources.
(3) Socialist planning is successful if it correctly meets the requirements
of the law of planned development of the national economy, and conforms fully
to the requirements of the basic economic law of socialism. In the actual
planned management of the economy, economic instruments connected with
the operation of the law of value are utilised. The balance method of planning
is of great importance in fixing correct proportions for national economic
development.
(4) Planned management of the national economy is a most important
aspect of the Socialist States function as economic organiser. National
economic plans are worked out by State bodies on the basis of directives
determined by the Communist Party, and are based on scientific generalisation
from the experience of socialist construction, on taking into account the
advantages afforded by a sodalist economic system, and on the external and
internal situation. State plans are geared to everything advanced which arises
in the practice of communist construction, in the creative work of the masses,
and are directive in character. To carry on the national economy in a planned
way, the mass of the people must be rallied to fulfil and exceed the plan
targets, and daily checking of the fulfilment of the plan must be organised.
(5) A very great advantage of socialism over capitalism is planned
development of the national economy, without crises. This brings about a
saving in resources which the bourgeois system cannot achieve, and makes it
fully possible for all sides of production to grow continuously and rapidly in the
interests of the mass of the people.
 CHAPTER XXXI

SOCIAL LABOUR IN SOCIALIST SOCIETY

The Character of Labour in Socialist Society.

The consolidation of socialist relations of production denotes a fundamental

change in the character of work. Labour-power has ceased to be a commodity.
The working people, with the aid of the means of production belonging to them,
work for themselves, for their own society. Work in socialist society is work freed
from exploitation.

For the first time after centuries of working for others, of working in
subjection for the exploiter, it has become possible to work for oneself, and
moreover to employ all the achievements of modern technique and culture
in ones work. (Lenin, How to Organise Competition, Selected Works,
1950; English edition, Vol. II, Part I, p. 368.)

Under capitalism free labour presents itself directly as private labour and its
social character is seen only in the market, behind the back of the commodity
producers, whereas labour in socialist society has a directly social character, and
is organised in a planned way on a country-wide scale. In consequence of this,
the labour of each individual worker appears directly as part of the total social
labour. The planned organisation of social labour provides the opportunity,
unknown under capitalism, of making the fullest use of labour reserves on the
scale of the whole society.
Under socialism, the position of the working man in society has been
fundamentally changed. In contrast to capitalism, where mans status is
determined by his social origin and wealth, mans status in socialist society is
determined by his work and personal abilities alone.
Freedom from exploitation and the changed status of the working man in
society evoke a transformation in mans view of labour giving rise to a new
attitude to work. In the course of centuries the exploiting system created among
numerous generations of working people an aversion to work, as to an onerous
and shameful burden. Socialism transforms labour into a matter of honour, valour
and heroism and imparts to it an increasingly creative character. In socialist
society the working man, if he works well and displays initiative in improving
production, is surrounded with honour and glory.
All this gives rise to new social incentives to labour that are unknown under
capitalism.
At the same time labour in socialist society has not yet become a prime
necessity of life for all members of society; work for the common good has not
yet become a matter of habit. In the socialist stage, survivals of capitalism in
mans consciousness have not yet been finally overcome. Alongside the majority
of workers honourably fulfilling their obligations to society, and displaying creative
initiative in work, there are workers who treat their obligations dishonourably and
violate labour discipline. Such people try to give as little as possible to socialist
society and to receive as much as possible from it.
In socialist society there are still considerable survivals of the old division of
labourthe essential differences between mental and physical labour, between
the labour of worker and peasant, the differences between skilled and unskilled
labour and between heavy and light labour. These survivals are only being
overcome gradually, as the productive forces of socialism develop and the
material production basis of communism is created.
It follows from all this that the personal material interest of the worker in
the results of his work as an incentive to the development of production is of
tremendous importance. This interest is secured by the workers dependence for
his position in society on the quantity and quality of his labour. Making use of the
material interest of every worker in the results of his labour is one of the
fundamental methods of socialist economic management. Lenin pointed out:
Every important branch of national economy must be built up on the principle of
personal incentive. (Lenin, The New Economic Policy and the Tasks of the
Political Education Departments, Selected Works, 12 vol. edition, 1946, vol. IX,
p. 265.)
The principle of material interest is most extensively applied in the wages of
workers and employees, in the distribution of incomes in the collective farms, in
the organisation of cost-accounting, in the fixing of prices of industrial and
agricultural products, etc.
The radical change in the nature of labour under socialism provides the
necessary conditions for a systematic and rapid growth of its productivity, for
creating a productivity of labour that is higher than that under capitalism.

Labour as an Obligation of Members of Socialist Society.

Exercise of the Right to Work

Socialism and labour are indivisible. Socialism has put an end to the blatant
contradiction of the capitalist system, whereby an exploiting upper crust of society
leads a parasitic existence while the working masses bear the yoke of labour
beyond their strength, only interrupted by periods of compulsory inactivity
through unemployment. In eliminating capitalist ownership of the means of
production, socialism thereby abolished the conditions in which one classthe
owners of the means of productioncould live on the labour of another class of
people, who were deprived of the, means of production. Since personal labour
alone is a means of livelihood in socialist society, social ownership of the means of
production denotes the equal obligation of citizens to participate in social labour.
Labour in the U.S.S.R. is an obligation and a matter of honour for every able-
bodied citizen.
 The socialist system, for the first time in the history of mankind, put into
practice not only the equal obligation of all able-bodied citizens to work, but also
the equal right of all citizens to work. In this way the age-old dream of the
working masses has been brought to life in socialist society. The right to work
results from the social ownership of the means of production, which gives to
every citizen equal access to work on the socially-owned land and in the socially-
owned factories and mills. The right to work is the right of each able-bodied
member of society to obtain secure work paid in accordance with its quantity and
quality. This right has been given legislative force in the Constitution of the
U.S.S.R., and is guaranteed in practice by the socialist organisation of the national
economy, the steady growth of the productive forces of society, and by the
elimination of the possibility of economic crises and of unemployment.
Unemploymentthe scourge of the working people under capitalismhas
been eliminated in the U.S.S.R. once and for all; the worker is no longer under
the threat of being thrown out of work and deprived of the means of livelihood.
The abolition of unemployment and of the uncertainty of the workers for the
morrow, the abolition of impoverishment and pauperism in the, countryside, are a
great achievement of the Soviet people.
The effective right to work enables the labour resources of society to be
utilised on an enormously increased scale for the development of production. The
continuous growth of production in socialist society logically leads to a steady
growth in the number of workers and employees.

The number of manual and clerical workers in the national economy of the U.S.S.R. at the
end of the year amounted in 1928 to 10.8 million, 1932, 22.8 million, 1937, 27 million, 1940, 31.5
million, 1954, about 47 million.

The elimination of unemployment in the towns and of rural over-population

and poverty in the countryside, together with the continuous growth of socialist
production, fundamentally alter the conditions in which enterprises are provided
with labour-power. Under capitalism the demand for labour-power is satisfied
without any element of planning, out of the reserve army of unemployed and
rural surplus-population. In socialist society, on the contrary, enterprises obtain
their labour in a planned way, by organised recruitment, training and allocation.
Capitalism makes the worker an appendage of the machine and stifles
mans abilities. Socialism, on the contrary, liberates labour from exploitation and
gives all citizens free access to education thereby providing all the necessary
conditions, for the development and free play of the capacities of the working
people.
The continuous growth of socialist production on the basis of the highest
techniques requires a steady rise in the cultural and technical level of the working
people, and an increased proportion of skilled workers in all branches of the
national economy. The training of workers in a planned way and on a mass scale
has been achieved under socialism for the first time in history.
 The rise in the cultural and technical level of the working people is secured,
above all, by the development of education. In the Soviet Union universal
compulsory seven-year education has been achieved and the transition to
universal compulsory secondary (ten-year) education is taking place. Special
secondary and higher education has been widely developed. The cultural
characteristics of the working class and the peasantry are changing. The
proportion of workers and collective farmers who have had seven-year and
secondary education is growing.
The rise of the cultural and technical level of the working people also takes
place through production and technical training, which includes both training of
new workers and improvement of the workers existing skill while continuing at
their trade. To satisfy the demand for skilled personnel in the key branches of the
national economy, a system for training State labour reserves has been created in
the U.S.S.R. It possesses a network of industrial and railway schools, and well as
factory and mill schools. Those attending these schools are maintained by the
State during their period of study. Together with the system of State labour
reserves, an important source for supplementing the numbers of skilled workers
is the mass production training of workers at their places of work, through
individual and team study and in courses of instruction which embrace millions of
working people. There is a rapidly increasing number of intelligentsia and highly
qualified specialists drawn from the ranks of the workers and peasants.

By the beginning of 1952 more than half the total number of industrial workers in the
U.S,S.R. had already received an education up to the 5th or 6th classes at secondary school. The
number of workers who have finished the ten-year schools is increasing.
In the course of fourteen years (from 1941 to 1954 inclusive) more than 7 million young
skilled workers in various trades were trained at the expense of the State in the industrial and
railway schools, in factory and mill schools, and in schools for the mechanisation of agriculture.
During four years of the fifth Five-Year Plan a yearly average of 2,500,000 new skilled workers
were trained by individual and team study and at courses of instruction, and some 3,500,000
workers improved their skill. In the same period about 2,500,000 collective farmers annually
attended three-year agronomic and stock-breeding courses. The system of correspondence
courses for workers, and collective farmers is also widely developed.

Distribution According to WorkAn Economic Law of Socialism

The socialist mode of production also determines its appropriate form of

distribution. With socialist society in mind, Engels wrote:

Distribution, in so far as it is governed by purely economic

considerations, will be regulated by the interests of production, and
production is most encouraged by a mode of distribution which allows all
members of society to develop, maintain and exert their capacities with
maximum universality. (Engels, Anti-Dhring, English edition, 1954, pp.
277-8.)
 In socialist society, distribution according to work most fully corresponds to
this requirement.
In the first phase of communism, the productive forces have not yet
achieved a level high enough to provide the abundance of products which is
necessary for distribution according to needs. As already stated, labour under
socialism has not yet become lifes prime need for the entire mass of the working
people and, in consequence, workers have to be given a material incentive. Under
socialism there is still a difference between skilled and unskilled labour, and
between the labour of the conscientious worker and of the worker whose attitude
to his duties is not conscientious. In consequence, the distribution of articles of
consumption has to take into account the differences in the quantity and quality
of the labour expended by each worker in socialist production.
Hence the need arises for the strictest control, by society and by the State,
of the measure of labour and the measure of consumption. (Lenin, State and
Revolution, Selected Works, English edition, 1951, p. 300.) Socialist society has
to supervise peoples participation in labour, take account of the differences in
skills, and lay down output standards and scales of payment, so that he who
works most and. best receives a greater share of the product of social labour.
Consequently distribution according to work is the sole possible and
necessary method of distributing material wealth in socialist society. By giving
every worker a personal material interest in the results of his labour, distribution
according to work is a powerful motive force in developing production. It
encourages higher productivity of labour and thereby helps to raise the well-being
of the working people.
By making each workers share of the product of social labour depend
directly on the degree of his participation in social production, distribution
according to work links the personal interest of the worker with the general
interests of the State.
Distribution according to work necessitates strict allowance for the
differences between skilled and unskilled work. Higher payment for skilled work
does justice to the skilled worker, and, gives unskilled workers the prospect of
rising into the ranks oft the skilled. This stimulates the cultural and technical
development of the working people, and brings about the gradual elimination of
the essential differences between mental and physical labour.
Distribution according to work helps to eliminate fluctuations in the labour
force and to build up stable cadres. This is of great importance for the
improvement of the organisation of work in factories. Without a permanent body
of workers who have mastered techniques and accumulated production
experience, the successful development of socialist production is impossible.
Thus distribution according to work is an objective necessity, and is an
economic law of socialism.
The economic law of distribution according to work requires distribution of
products in direct accordance with the quantity and quality of work of each
worker, with equal payment for equal work independently of the sex, age, race
and nationality of the citizens of socialist society. The reward of labour both in
industry and in agriculture should be built up so as to conform to this law.
 The economic law of distribution according to work is applied by the
Communist Party and the Soviet State in a determined struggle against petty-
bourgeois equalising tendenciesthat is, the equalising of wages independently of
the quantity and quality of work performed, the workers skill, or the productivity
of their labour. Equalising tendencies are a reflection of the petty-bourgeois
concept which sees socialism as a universal equalising of consumption, living,
conditions, tastes and needs. It inflicts great harm on production, leading to
fluctuations a personnel, a fall in labour productivity and non-fulfilment of plans.
In unmasking the petty-bourgeois concept of socialism, Lenin, explained the
Marxist concept of equality. By equality, Marxism understands not the equality of
physical and spiritual abilities, but social and economic equality. For socialism, this
means the elimination of the private ownership of the means of production and of
exploitation, equally for all; equal access to work with the socialised means of
production; equal obligation for all to work; and a single principle for all, of
payment according to work.

Socialist Co-operation of Labour

Socialism heralds a new and higher stage in the historical development of

co-operation of labour, compared with preceding forms of society. Socialist co-
operation of labour is the co-operation of workers freed from exploitation, and
linked with each other by relations of comradely co-operation and mutual aid; it is
based on the most advanced techniques. Socialist co-operation makes it possible
for labour to be an immeasurably more powerful productive force than does
capitalist co-operation. The methods of raising the productive capacity of social
labour which are inherent in co-operationapplication of the division of labour
and machine technique, economy of means of production, etc. are most fully
developed in the conditions of socialism.
In contrast to private ownership of the means of production which restricts
the scale of labour co-operation, social ownership greatly extends its limits and
enables the combined labour of many people to be applied on a scale inaccessible
to capitalism. This is reflected in a higher degree of concentration of production
than under capitalism, in both industry and agriculture, and in the carrying out of
the largest national economic measures.
A new labour discipline, which differs in principle from that of all preceding
forms of society, is characteristic of socialist co-operation. Capitalist organisation
of social labour is maintained by the discipline of hunger, by the separation of the
workers from the means of production. Socialist labour discipline is the
conscientious, comradely discipline of working people who are the masters of
their country. In socialist society, maintenance of the necessary labour discipline
is in accordance with the fundamental interests of the working masses. One of the
most important tasks of the Socialist State is the upbringing of the working
people in the spirit of socialist labour discipline and systematic struggle against
those who violate labour discipline.
 Every kind of combined labour of many workers requires management
which co-ordinates their activity and organises the necessary production links
between them. Socialist co-operation of labour presupposes the stable and steady
application of one-man management at all stages of the machinery of production
and administration. One-man management is a method of administering socialist
State enterprise and institutions which is based on the subordination of the mass
of workers to the single will of the head of the labour process. It is combined with
the broad creative initiative of the mass of workers m the process of production.
With the abolition of capitalist exploitation there has also been abolished the
managerial despotism inseparable from it, and representing all-powerful capital,
the arbitrariness of the employer and his management, and the lack of rights of
the working masses. In socialist society the heads of enterprises, trusts chief
administrations and Ministries are trustees and servants of the people and of the
Socialist State. Under capitalism the working people look on those in charge
directors, managers, floor managers and foremenas enemies, since they direct
production in the interests of the capitalists and of their profits. In socialist society
those in charge enjoy the trust of the people, since they direct production in the
interests, not of capitalist profits but of the entire people.
The elimination of exploitation fundamentally alters the relations between
those who work by hand and those who work by brain. The antithesis of interests
between the workers and the leading personnel of factories, which is
characteristic of capitalism, has vanished. In a socialist economy the manual
workers and the leading personnel of factories are members of a single working
collective which is profoundly concerned with successful and improved production.
Hence the creative partnership of the workers by hand and by brain, aimed at
constantly improving production.
Under capitalism the labour of the workers is increasingly deprived of spiritual
content and the gulf between mental and physical labour grows. In socialist
society manual labour constantly enriched by spiritual content; physical and
mental labour draw closer together, and the differences between them are
gradually eliminated. This is reflected in the continuous rise in the cultural and
technical level of the working class and the peasantry, and in the development of
socialist emulation, which is a most important feature of co-operation of labour in
socialist society.

Socialist Emulation

Socialist emulation is a method of raising labour productivity and perfecting

production on the basis of the maximum participation of the working masses.
Lenin pointed out that socialism provides the opportunity, for the first time, of
applying emulation on a really wide basis and on a mass scale, embracing the
millions of working people. Socialist emulation aims at fulfilling and overfulfilling
national economic plans and securing a continuous increase of socialist
production.
 In place of such motive forces of production as the drive for profit and
competition, socialism has given birth to new, incomparably more powerful motive
forces. These consist above all of the profound incentive, which the basic
economic law of socialism gives to the masses, to secure the development of
social production. The subordination of socialist production to the aim of satisfying
as fully as possible the growing needs of the working people serves as an
inexhaustible source for raising the productivity of labour and perfecting industry
on the basis of the highest techniques. Distribution according to work plays an
important role in developing socialist emulation. By making the remuneration of
labour dependent on the quantity and quality of the work done, distribution
according to work encourages the display of the creative initiative of the masses
in the process of production.
Socialist emulation differs fundamentally from the competition which
predominates in bourgeois society.

The principle of competition is: defeat and death for some and
victory and domination for others.
The principle of socialist emulation is: comradely assistance by the
foremost to the laggards, so as to achieve an advance of all.
Competition says: destroy the laggards so as to establish your own
domination.
Socialist emulation says: some work badly, others work well, yet others
best of allcatch up with the best and secure the advance of all. (Stalin,
Emulation and Labour Enthusiasm of the Masses, Works, English edition, Vol.
XII, p. 114.)

Socialist emulation expresses the comradely co-operation of the working

people and their common struggle for a general growth of production. It sets free
the creative abilities of the workers and makes possible the fuller utilisation of all
the advantages of social labour which exist under socialism.
The characteristic feature of emulation, is the creative initiative of
innovators and advanced workers, who have completely mastered advanced
techniques, by discarding the old, out-dated standards and work methods and
proposing new ones. In the struggle against all that is old and out-dated,
advanced workers are opening new paths for the development of production and
discovering new reserves for raising labour productivity.
The creative initiative of the working people does not allow production to
stagnate or mark time; it is the source of constant advance and improvement in
production. The key to the advanced work methods of the innovators is the
fundamental improvement of the organisation of work and production (division of
labour, combining jobs, working to schedule, etc.) and of production technology
and techniques (intensification of technological processes, perfecting of
instruments, appliances, machine tools, etc.). Advanced workers in agriculture
apply new methods of scientific technique in cultivation and stock-breeding,
raising crop yields and livestock productivity.
Socialist emulation presupposes rapid and widespread application of
advanced experience. In socialist society the force of example takes mass effect
for the first time, serving as a spur to continuous growth and improvement of
production. This is attained, in the first place, by the active comradely assistance
which the innovators extend to all workers in production in mastering advanced
labour methods, and takes a variety of forms (personal instruction, guardianship
of novices by old hands, schools for advanced workers and innovators, etc.)
secondly, by the efforts of the mass of working people to overtake the advanced
workers to master their experience so as to obtain a general increase in output;
thirdly, by widely publicising emulation, comparing the work results of
enterprises.
Widespread application of advanced experience is one of the most
important tasks of economic managers and social organisations. On. the basis of
the advanced experience of innovators in production, the State economic bodies
lay down progressive standards of labour expenditure and of utilisation of the
means of production. These standards are used as the basis of production plans.
The application of advanced experience, and the mastery of new standards and
methods of work by the majority of workers, secure a new and higher level of
labour productivity.
The Communist Party and the Soviet State take the lead of the socialist
emulation of the masses and support it in every way possible. For successes in
their work the working people receive not only material encouragement, but also
awards of orders and medals, while outstanding innovators are awarded the titles
of Heroes of Socialist Labour and receive prizes.

Socialist emulation in the U.S.S.R. has assumed national dimensions. The most widespread
and effective form of emulation in factories is individual and team emulation. At the same time,
emulation is developed between factory departments, entire factories, collective farms, M.T.S.,
State farms, districts, regions and republics. Emulation for high quality production, best utilisation
of productive capacities, reduction of production costs, above-plan economies of material and
financial resources and for high crop-yields and live-stock productivity, has developed on a broad
scale. More than 90 per cent of industrial workers participated in socialist emulation in 1954. More
than 900,000 proposals for inventions, technical improvements and rationalisation were applied in
industry, building and transport m 1954.

Socialist emulation in town and country is a powerful driving force in the

development of the socialist economy and in building communist society.

Steady Growth of Labour ProductivityAn Economic Law

of Socialism

A steady rise in labour productivity is a most important condition for the

triumph of socialism over capitalism and the building of communism. Lenin wrote:

In the last analysis, productivity of labour is the most important, the

principal thing for the victory of the new social system. Capitalism created a
 productivity of labour unknown under serfdom. Capitalism can be utterly
vanquished, and will be utterly vanquished, by the fact that socialism
creates a new, and much higher productivity of labour. (Lenin, A Great
Beginning, Selected Works, English edition, 1950, Vol. n, Part 2, p. 231.)
As is well known, labour productivity is measured either by the quantity of
products turned out by the worker in a unit of time, or by the quantity of working
time expended an a unit of production. Higher labour productivity is expressed in
the fact that with a decreased share of living labour in the product, and a relative
increase in the share of past labour, the total quantity of labour in a unit of
production diminishes. A growth of labour productivity means increased output
per unit of working time.
Labour productivity increases with economy of labour, including, in this
context, both living and congealed labour an a nation-wide scale. Marxism
teaches that real economy consists in a saving of working time, and that this
saving is identical with the development of the productive capacity of labour. Marx
speaks of the universal economic law by virtue of which costs of production
continually fall while live labour continually becomes more productive. But this
law operates differently; under different economic conditions. Owing to the
contradictions inherent in capitalism, the productivity of labour in bourgeois
society grows at a slaw rate and is unstable in character. Hence for capital the
law of rising productive power of labour does not have unconditional validity.
(Karl Marx, Capital, Vol. III.)
As well as eliminating private capitalist ownership, socialism also destroys
the barriers inherent in capitalism which bar the way to an increase in the
productivity of labour. It makes objectively necessary and possible a steady
increase in the productivity of labour in accordance with the demands of the basic
economic law of socialism.
A steady rise in the productivity of labour is an essential condition for the
constant increase of socialist production and the fullest satisfaction of the
constantly growing needs of the people. The uninterrupted growth of socialist
production occurs, firstly, owing to a rise in the productivity of labour and,
secondly, owing to an increase in the total number of workers engaged in material
production. In the period between 1940 and 1954 the rise in the productivity of
labour accounted for approximately 70 per cent of the increase in industrial
production, and the increase in the number of workers for approximately 30 per
cent. Thus, the rise in the productivity of labour is the chief and basic source of
the constant rise in socialist production.
The systematic rise in the productivity of labour because it ensures a rapid
increase in output, makes possible both an expansion of industry and an increase
of consumption. A steady rise in the productivity of labour is also necessary in
order to ensure the triumph of socialism in economic competition with the highly
developed capitalist countries.
Socialism creates the conditions necessary for a systematic and rapid rise in
the productivity of labour. Socialism eliminates the tremendous waste of labour
connected with anarchy of production and economic crises of overproduction and
ensures the planned, most rational use of the means of production and labour-
power on the basis of constant improvement of techniques and organisation of
labour. In the conditions prevailing under socialism, in contrast to capitalism, the
working people are profoundly interested in the maximum economy of labour
time and means of production since industry serves the interests of the people.
The Soviet worker is directly interested in raising the productivity of
labour, for he knows that it strengthens the canals power of the U.S.S.R.
and raises the cultural level of the working people. The basis of the high
productivity of social labour under socialism lies in the unity of interests of
the state and the people. (G.M. Malenkov, Report to the XIX Party
Congress on the Work of the Central Committee of the C.P.S.U., Russian
edition, p. 45.)

All this testifies to the fact that the economic law of a steady rise in the
productivity of labour operates in socialist society.
This law determines both the need far increasing the amount produced per
worker and also the increase in the productivity of the whole of social labour.
It is essential for every worker in socialist industry constantly to increase in
his own sector the productivity of labour by improving his use of working time and
applying the most productive methods of work.
There is required, besides this, an increase in the productivity of the whole
of socialist labour. Productivity of labour from the social point of view increases as
a result of an economy of labour on a scale covering the whole of society, that is
to say as a result of the best possible use of machinery and equipment, raw
materials, fuel and other materials, an improvement in the location and utilisation
of the resources of live labour, a more rational location of industry throughout the
regions of the country, an improvement in the quality of output, etc. Thus, by
bringing production of an article closer to sources of raw materials and areas of
consumption, the expenditure on the labour of transporting the article is reduced
and, consequently, an economy of the labour for society is effected. Similarly,
higher quality of production, shown, for example, by an increase in the period of
service of a particular article, means an economy of labour for society as a whole.
Of great importance for a rise in the productivity of social labour is an increase in
the proportion of workers engaged in material production compared to a
reduction in the administrative and managing apparatus, and also an increase in
the proportion of workers engaged in the basic production processes compared
with the personnel engaged on subsidiary and auxiliary work.

The Sources and Reserves of a Rise in the Productivity

of Labour

In administering the national economy, the Communist Party and the Soviet
State make use of the law of a steady rise in the productivity of labour. The
national economic plans provide for a considerable annual increase in the
productivity of labour, as a major condition for a total increase in output. The
Communist Party and the Soviet State mobilise the working people to strive for a
steady increase in the productivity of labour in all branches of the nations
economy, at every enterprise and in every production sector.
The economy of the U.S.S.R. has surpassed all the capitalist countries by
the speed of its increase in labour productivity. The level of productivity of labour
in the national economy of the U.S.S.R. is several times higher than the level of
pre-revolutionary Russia.

During the years of the first Five-Year Plan the labour productivity in the industry of the
U.S.S.R. increased 41 per cent, and in the second Five-Year Plan82 per cent. The average annual
increase in labour productivity during the first Five-Year Plan was 9 per cent and in the second
Five-Year Plan12.7 per cent. In 1940 the productivity of labour in the industry of the U.S.S.R.
increased four times andif account is taken of the reduction in the working hours per day5.2
times compared with 1913. During the post-war period there has been a further increase in the
productivity of labour. It increased in 1954 as against 1940 by 83 per cent in industry and 61 per
cent in building.
During the period between 1928 and 1954 the productivity of labour in industry increased
more than six times, in building and railway transport approximately four times. Productivity of
labour in collective and State farms was approximately three times as high as in pre-revolutionary
agriculture.

From the point of view however, of the tasks of communist construction and
economic competition with the advanced capitalist countries, and also of the
opportunities available, the level of the productivity of labour reached is
insufficient. As regards productivity of labour in industry, the U.S.S.R. has
overtaken the leading capitalist countries of Europe but lags behind the United
States of America. In the practical working of industry, agriculture, transport,
building, there are still serious shortcomings which have not been eliminated and
which hinder the full utilisation of the advantages of the socialist system for
increasing the productivity of labour, and there are still enormous unutilised
reserves.

Although the plan for the first four years of the fifth Five-Year Plan (1951-4) of industrial
output was overfulfilled, the plan for the productivity of labour was not completely fulfilled. Many
industrial enterprises systematically fail to fulfil the plans for productivity of labour. In the post-war
period the rise in the productivity of labour lagged behind the rise in real wages. During the 1951-
4 period the productivity of labour in industry rose 33 per cent while real wages rose 37 per cent.
Side by side with the total increase in the productivity of labour there were certain industries
which in this respect lagged far behind or even marked have. Thus, for instance, the productivity
of labour for the whole of industry in 1954 increased 83 per cent compared with 1940, but the
productivity of labour in the coal and timber industries was only a little above the 1940 level.

Utilisation of all available reserves will enable new, important successes to

be gained in further increasing the productivity of labour.
In socialist society an increase in the productivity of labour is due primarily
to the national economy being systematically provided with new and ever more
perfect techniques, to an, intensification of the technical equipment of labour. The
perfecting of techniques and a steady rise in the productivity of labour are
possible only on the basis of the law of the priority growth of the production of
means of production, the development of heavy industry.

During four years of the fifth Five-Year Plan, the industry of the U.S.S.R. received annually
on the average new equipment to the value of 26,000 million roubles. By the beginning of 1955
the total number of metal-cutting lathes in the national economy of the U.S.S.R. had increased 2.4
times compared with 1940. The electrical equipment of labour in large-scale industry had increase
30 per cent in 1954 compared with 1950, and was twice as great as in 1940.

However, in the practical carrying out of economic development the existing

possibilities of technical progress and of raising the productivity of labour are not
being sufficiently utilised.
The rate at which improvements in machinery, mechanisms and
technological processes are being made lags behind the rate of development of
production and the requirements of the national economy. Many types of
machinery and equipment made in Soviet enterprises are inferior in quality and
technical standard to the best types produced abroad.
Insufficient application is made of complex mechanisation and automation of
production, there are disparities in the level of mechanisation of interlinked
production processes. Where there is a high level of mechanisation of the main
industrial processes, as a general rule the auxiliary processes are still very little
mechanised. But the higher the level of mechanisation of the main sectors and
links and the higher their productivity labour, the more labour-power is required
for the non-mechanised sectors and operations (e.g., the loading of coal). Hence
large amount of manual labour in industry and other branches of the national
economy.

Thus, the proportion of workers operating by hand is as follows: in the lumbering industry
68 per cent, in coal-mining44 per, in the iron and steel industry35 per cent, in building68 per
cent. The labour of these workers is of low productivity. As a of this, what is gained from
mechanisation and the rise in the productivity of labour in the main production processes is to a
considerable extent lost owing to the use of manual labour on auxiliary work.

To ensure a further considerable rise in the productivity of labour, there

must be a sharp increase in the rate at which industry is technically equipped, by
means of constant improvements in machinery, equipment and technological
processes, and the wide development of complex mechanisation and automation
of production processes.
Constant improvement in the organisation of production is of tremendous
importance for raising the productivity of labour. Improved organisation of
production within the enterprise involves combating last-minute spurts,
introducing even working according to schedule, the use of the uninterrupted
even-flow method and the carrying through of other measures. Improvement in
the organisation of industry within the frame-work of a given branch and on a
country-wide scale requires wide use of specialisation and co-operation in
production and, in connection with it, the unification and standardisation of parts
and assemblages and improvements in the geographical location of industry, that
is to say, primarily the utilisation of the advantages of planned, social division of
labour. By using the advantages of social division of labour on both a branch and
territorial scale, the labour expended on the production and transport of
commodities can be reduced. Extensive specialisation of industrial enterprises
with the application of mass even-flow production makes it possible to organise
the production of articles on a mass scale, to introduce advanced techniques
widely, to rationalise the organisation of industry and so to raise the productivity
of labour to a considerable extent.
The economic importance of specialisation in production can be shown by the following
data. At a specialised factory the cost of producing a 12X60 mm. bolt is ten kopecks, but in
mechanised workshops making consumer goods it is 1 rouble 40 kopecks, i.e., 14 times more
expensive. Further, the specialised factory greatly economises metal in the manufacture of the
bolts. In the automobile industry the production of a standard tool costs four times as much as it
does at a specialised tool works.

The socialist organisation of labour based on conscious discipline and comradely

co-operation among the workers and payment for labour according to quantity
and quality provides great opportunities for raising the productivity of labour.
Further improvement in the organisation of labourcombating stoppages,
strengthening discipline, bringing more order into industry, improving the fixing of
norms and payment for labouris a great reserve for raising the productivity of
labour.
A constant increase in the level of technical efficiency and industrial skill of
the workers is an important condition for a steady rise in the productivity of
labour. Modern techniques require highly-skilled workers capable of making and
operating complicated machines.
To ensure a steady rise in the productivity of labour constant attention must
be paid to training cadres, improving the quality of training to the utmost in
accordance with the rapid progress of technical equipment and the technology of
production.
Under socialism, the development of the creative initiative of the workers in
improving technique and organising production, which finds expression in socialist
emulation, is a powerful driving force in raising the productivity of labour. For a
further rise in labour productivity, socialist emulation needs to be more widely
developed, the initiative of the foremost industrial workers and innovators must
have the fullest support and their advanced experience should be persistently
popularised in order that the achievements of the foremost workers may be
mastered by the workers as a whole.

BRIEF CONCLUSIONS
(1) Socialism has freed the workers fro~ exploitation and has replaced work
in subjection to the exploiters by free labour for oneself, for the whole of society.
Labour in socialist society has a creative character, and is organised in a planned
way on a nation-wide scale. But labour in socialist society has not yet become
lifes prime need for all people, and requires material incentive. Socialist society
exercises strictest supervision of the measure of work and remuneration of each
worker.
(2) In socialist society, labour is an obligation and a matter of honour for
every able-bodied member of society. In the socialist system of national economy
unemployment has been abolished, and the right of all members of society to
work has been put into effect. In socialist economy the continuous growth of
production is accompanied by a steady increase in the number of employed
workers and the raising of their cultural and technical level.
(3) In socialist society the economic law of distribution according to work is
applied. This requires distribution of material wealth in direct accordance with the
quantity and quality of work done by each worker, equal pay for equal work,
irrespective of the sex, age, race or nationality of the working people. Payment
for labour both in industry and agriculture is based on the requirements of this
law.
(4) Socialist co-operation of labour is the co-operation of workers freed
from exploitation, and linked with one another by ties of fraternal co-operation. It
is based on the highest techniques, and characterised by conscientious discipline
and a new kind of management combining one-man control with the broad
participation and activity of the masses. Socialist emulation is a most important
feature of socialist co-operation, and is a motive force in the development of the
socialist economy.
(5) Socialism gives rise to a higher productivity of social labour than does
capitalism. The steady growth of labour productivity is an economic law of
socialism. Increasing labour productivity is a decisive condition for the continuous
growth of socialist production and a rise in the welfare of the people.
 CHAPTER XXXII

COMMODITY PRODUCTION, THE LAW OF VALUE,

AND MONEY, IN SOCIALIST SOCIETY

The Necessity for Commodity Production in Socialist Society.

its Characteristics

Commodity production is made necessary in socialist society by the

existence of two basic forms of socialist productionState and collective farm. In
State enterprises both means of production and output are public property. In
collective farms, means of production (such as draught and productive livestock,
agricultural implements, farm buildings and seeds), and the output collectively
produced, are group or co-operative collective farm property. The basic and
decisive means of production in agriculture (land and the M.T.S. machines) are
State property. Since the output of State enterprises belongs to the Socialist
State, and collective farm output belongs to the collective farms, exchange of
goods through purchase and sale is the necessary form of economic connection
between industry and agriculture. Here, as in all purchases and sales the seller
loses his right of ownership to the commodity, and the purchaser becomes its
owner.
Lenin pointed out that the economic essence of socialism is exchange of
the products of large-scale (socialised) industry for peasant products (Lenin,
Plan of the pamphlet On the Tax in Kind, Works, 4th Russian edition, vol. XXXII,
p. 308), and that commodity exchange is a check on the correctness of the
relationship between industry and agriculture, the working class and peasantry.
Lenins statements remain true for the whole of the first phrase of communism.
The Soviet State acquires food for the urban population and raw material for
industry mainly from collective farms and their members through regular
commodity exchange, through compulsory purchase at fixed prices and voluntary
purchase by contract, at higher prices. Collective farms and their members in
their turn can obtain the money they need to acquire the output of industry only
by selling their own marketable output to the State, to co-operatives, and on the
collective farm market.
Thus agricultural produce and raw materials acquired from the collective
farm sector by the State and the co-operatives by compulsory purchase or by
contract are commodities; and so are agricultural products sold by collective
farms and their members in collective farm markets. Industrial products (mostly
consumer goods) produced by State enterprises and purchased by collective
farms and their members, are also commodities. In as much as manufactured and
agricultural consumer goods are commodities, the urban population also acquires
them through purchase and sale. In this case there is a transfer of commodities
from State and co-operative ownership, or from the private ownership of
collective farmers, to the private ownership of the workers and other employees.
In socialist economy commodity production is commodity production of a
special kind, without private ownership of the means of production, without
capitalists. In the main it is carried on by united socialist producers (the State,
collective farms, the co-operatives). The means of production are socially owned,
and the system of hired labour and the exploitation of man by man is abolished;
these decisive economic conditions confine commodity production in socialist
economy within definite limits. It cannot turn into capitalist production, and
serves socialist society.
In socialist society commodity production is not as unlimited and universal
in its scope as it is under capitalism. The area of operation of commodity
production and circulation is limited mainly to consumer goods. Labour-power is
not a commodity. The land and natural resources are State property and cannot
be bought or sold. State enterprises cannot be bought and sold, and may be
transferred from one State organisation to another only by special permission:
this includes works, factories, mines, arid power stations, and their fixed
productive stocks (machinery, buildings, installations, etc.). They are therefore
not commodities, not objects of sale or purchase.
Means of production produced in the State sector (such as machines,
machine tools, metal, coal, oil, etc.) are chiefly distributed among State
enterprises. The national economic plans provide for the allocation to each
enterprise of definite material funds appropriate to its production programme. The
enterprises producing these funds supply them to the consuming enterprises on
the basis of contracts between the two parties. When means of production are
transferred to a particular enterprise the Socialist State remains their full owner.
Directors of enterprises who receive means of production from the Socialist State
in no way become their owners; they are simply agents of the State, invested
with the function of utilising the means of production in accordance with State
plans. The main agricultural machines, such as tractors and combine harvesters,
are not sold to the collective farms but are concentrated in the machine and
tractor stations, which are State enterprises and serve the collective farms with
the assistance of these means of production.
The means of production bought by the industrial co-operatives collective
farms and collective farmers: motor vehicles, equipment for the social farming of
the collective farm, cement, iron bricks coal timber for building, the simplest
agricultural machines and tools are all commodities. The means of production sold
to foreign States are also commodities. In these cases, purchase and sale, an
exchange in the ownership of the commodities, takes place.
Thus, the means of production manufactured by State enterprises and
distributed within the State sector are essentially not commodities. Since,
however, consumer goods, agricultural raw materials and part of the means of
production are commodities, while socialist economy represents a single whole in
which all parts are interconnected, the means of production, which circulate inside
the State sector, also retain the commodity form. This is reflected in the fact that
the means of production are expressed in the money form of value, which, is
necessary for the realisation of economic accounting, stock-taking and calculation.

Use-Value and Value of a Commodity in Socialist Economy

Products which are made and realised as commodities in socialist society

have a use-value, created by concrete labour, and a value, created by abstract
labour. In other words, a commodity, has a two-fold character in socialist society
determined by the two-fold character of the labour embodied in the commodity.
The two-fold character of labour in socialist society, radically differs from
the two-fold character of labour in simple commodity production and in capitalist
economy. The contradictions between private and social labour which are typical
of commodity production based on private property do not exist in socialist
society. As stated above, labour in a socialist economy is not private but directly
social labour. Society plans the process of production, the distribution of labour
among different branches of the national economy and among particular
enterprises. In view of all this, commodity fetishism is overcome in socialist
economy, and social relations between men do not assume the deceptive form of
relations between things.
But in socialist economy there are differences in the directly social nature of
labour in State enterprises and that in the collective farms, which arise from the
differences between the two forms of socialist ownership of the means of
production. In State enterprises labour is socialised on a national scale, by virtue
of which the product of labour, too, belongs to the whole of society in the shape of
the Socialist State. In the collective farms labour is socialised within the limits of
the given agricultural artel, by virtue of which the products of labour, too, are the
property of the artel. In addition, collective farmers use their labour on their
personal auxiliary plot, which is of subordinate importance. Labour in the
subsidiary husbandry is private labour; it is not directly social labour.
The differences in the degree to which labour is socialised in State
enterprises and collective farms, and the existence of commodity connections
between State industry and the collective farms, due to the two forms of social
ownership, make it impossible to express and compare directly, in the form of
labour-time the social labour expended in producing the output of the State and
collective farm sectors. This makes necessary the indirect reduction of the social
labour expended on the production of industrial and collective farm output to a
common expression and measure, by utilising value and its forms. This is effected
by reducing the various concrete forms of the labour of workers and collective
farmers to their equivalent in abstract labour, which creates the value of a
commodity.
The Socialist State in the process of planned management of the national
economy takes into account both aspects of a commodity, its use-value and its
value. The State requires that its enterprises should produce particular forms of
outputparticular use-values. Use-value is of interest to the capitalist only as a
bearer of value and surplus-value, but in socialist economy the creation of use-
values and the improvement of the quality of output have an independent and
very great importance, for production is carried on in the interests of the fullest
possible satisfaction of the growing needs of the whole of society.
In socialist economy the value of a commodity is also of very substantial
importance. The State plans production in money indices as well as in physical
indices. Here the systematic reduction of the value of commodities which are
produced, and the reduction of prices on this basis, plays a great part in ensuring
the maximum satisfaction of the needs of society.
In socialist economy the antagonistic contradiction between use-value and
value with which is linked the possibility of crises of overproduction, does not
exist. At the same time a non-antagonistic contradiction between use-value and
value can arise under socialism as well. Socialist economy makes it fully possible
to fulfil production plans in both monetary and physical terms.
However, this possibility is not always realised. In the practical work of
economic construction, the contradiction between use-value and value is
revealed, for example, in cases of excessive amount of a commodity, when a
commodity cannot be sold because of its low quality, because it does not
correspond to the demand, and so on, or in cases where individual enterprises in
a drive to turn out the more profitable sorts of articles fail to fulfil the plan as
regards range and quality of production. Contradictions of this kind are revealed
and resolved in the course of the planned management of economy.
In socialist economy there is a distinction between complex (skilled) and
simple labour, and complex labour is expressed in terms of simple labour. The
relation between complex and simple labour is taken into account in planning
production, in fixing output standards, and in planning wages (when the payment
for different skills, etc., is fixed).
The magnitude of the value of commodities produced and realised in
socialist economy is determined by the quantity of socially-necessary labour-time
expended on producing them. Socially-necessary labour-time means the average
labour-time expended by the enterprises which produce the bulk of output in the
branch concerned.
The socially-necessary time is a quantity which has an objective existence.
The socially-necessary labour-time expended on producing a unit of a commodity
determines the social value of the commodity. The time actually expended in
producing a unit of a commodity in particular enterprises is the individual labour-
time which determines the amount of the individual value of a commodity in each
of these enterprises. Under capitalism socially-necessary time is formed blindly,
behind the backs of the commodity producers. In socialist economy the State,
basing itself on objective economic conditions and on the requirements of the
economic laws of socialism, plans the growth of labour productivity and the
reduction of production costs, and fixes standards for the expenditure of labour
and materials in each enterprise. In this planned way it uses its influence to
reduce the quantity of socially-necessary time used in producing a commodity.
Under capitalism the contradiction between individual and socially-
necessary labour-time is antagonistic in character. Enterprises at a more
advanced technical level receive surplus profit, keep their technical improvements
secret, and thus defeat, ruin and destroy their competitors. In socialist economy
the contradiction between the individual time expended at particular enterprises
and the socially-necessary labour-time is not antagonistic in character.
Commercial secrecy is unknown in socialist economy: in consequence, it is
possible for the technical achievements of more advanced enterprises to be
quickly spread to all enterprises in the branch of the economy concerned, and
thus socialist economy as a whole is improved.

Progressive standards of expenditure of labour and materials the fixing of which takes into
account the experience of more advanced enterprises, are an important means by which the
Socialist State exercises a planned influence on the quantity of socially-necessary time. They pave
a great mobilising importance, as they encourage economic managements and the mass of
working people to seek out methods by which production can be rationalised, new technology
brought into use, labour productivity raised and output costs lowered. After these progressive
standards have been reached by a majority of enterprises (producing the greater part of the total
output), they begin to coincide with socially-necessary labour outlays and cease to be progressive.
However, the more advanced enterprises have meanwhile again reduced labour outlays on
production. On the basis of the experience of the more advanced enterprises, new progressive
standards of labour outlays are fixed; and, by achieving these, socially-necessary time is again
reduced.

All this helps to speed up technical progress and the rapid development of
the productive forces of socialist society.

The Nature of the Operation of the Law of Value in Socialist

Economy

The law of value continues to operate in socialist economy to the extent

that commodity production and circulation still exist. The economic structure of
socialism confines the operation of the law of value within strict limits. The means
of production in town and country are socialised, and the sphere of operation of
commodity production and circulation is restricted. The role of the law of value is
limited by these factors, by the operation of the economic laws of socialism,
primarily the law of planned development of the national economy, by the
planning of the national economy, and in general by all the economic activity of
the Socialist State.
The law of value in socialist economy cannot be the regulator of production.
As already shown, the regulator of socialist production is the law of planned,
proportional development.
In building enterprises and even in establishing whale branches of
production, the Socialist State is guided not by the urge to make profit but by the
requirements of the basic economic law of socialism and the law of planned
development of the national economy. If the law of value functioned as the
regulator of production, the most profitable branches and light industrial
enterprises would be the first to develop in socialist society, and heavy industrial
enterprises, which were very important from the paint of view of the interests of
national economy but which temporarily might be unprofitable, would have to
close down. However, in the U.S.S.R. enterprises which are at first unprofitable,
or show only a small profit, are not closed dawn if they are necessary to the
national economy: they are continued and subsidised, although at the same time
steps are taken to make them profitable.
In contradistinction to capitalism, where the law of value operates as a blind
farce dominating man, the operation of the law of value in socialist economy is
known, taken into account and utilised by the State in the practice of planning the
national economy.
The sphere of operation of the law of value in socialist economy covers
primarily the circulation and exchange of commodities (mainly consumer goods).
In this sphere the law of value retains the function of a regulator to a certain
limited extent. The regulating role of the law of value in the sphere of commodity
circulation is revealed first and foremast through prices.
When planning prices, the Socialist State takes into account and uses the
influence of the law of value. The problem of securing a sound economic basis for
the planning of prices is of great importance for the development of the national
economy.

In the problem of prices all the main economic and therefore, the
political problems of the Soviet State intersect: Questions of establishing
correct relations between the peasantry and the working class, and of
achieving an inter-connected and inter-dependent development of
agriculture and industry . . . questions of securing real wages and of
strengthening the chervonets,1 . . . all these came up against the problem
of prices. (Resolution of the Central Committee of the C.P.S.U. (B),
February 1927. The C.P.S.U. in Resolutions and Decisions of its Congresses,
Conferences and Central Committee meetings, Pt. II, 7th Russian edition,
1953, p. 225.)

In fixing prices, the State takes as its starting paint that it is necessary far
enterprises to make a certain amount of profit, and it takes into account the
quantity of particular commodities and their importance in the economy; and it
uses prices to. stimulate the production of particular goods and to regulate the
demand far them. The Soviet State consistently follows a policy of reducing prices
of consumer goods in the interests of improving the welfare of the people.
In fixing the prices of consumer goods, the State takes into account bath
their value expressed in money terms and the supply and demand of these
commodities. If the supply-and-demand situation were ignored, demand would
fall sharply for goods with especially high prices, and would be artificially raised
for goods with very low prices.
The regulating function of the law of value appears most fully on the
collective farm market, where prices are formed on the basis of supply and

1
The stable 10-rouble note, introduced by the currency reform of 1922-4Editor, English Edition
demand; price movements, moreover, influence the size and structure of
commodity turnover on the collective farm market. But the Socialist State has a
tremendous economic influence on this market, since the bulk of all commodities
are sold in the State and co-operative trading system at fixed planned prices.
The regulating action of the law of value in the sphere of commodity
circulation is kept within strict limits. In State and co-operative trade there is no
free play of prices. The Socialist State fixes the prices of commodities with
certain deviations. from the value of the commodities. In doing so it proceeds
primarily from the fact that the basic economic law of socialism makes it
necessary to ensure a constant expansion of industry on the basis of the high
techniques for the purpose of satisfying the growing requirements of the whole of
society. The State uses the price mechanism to fix proportions in the distribution
of means among the branches that follow from the requirements of planned
development of the national economy. The State, for example, by means of an
appropriate price policy uses part of the incomes created by some branches to
produce a rapid rise of other branches.
The operation of the law of value is not limited to the sphere of commodity
circulation. The law of value also influences socialist production.
Through prices, the law of value influences collective farming output. The
level of prices and the relationship between them, in accordance with which the
collective farms and collective farmers sell their output, exert a substantial
influence in materially stimulating the production of particular agricultural
products. It is wrong, for example, to fix the same State purchase price for a ton
of cotton and a ton of grain, failing to take into account the fact that the value of
cotton is considerably greater than the value of grain. On the other hand, it is
wrong to fix grain prices too low, as this would undermine the material interest of
the collective farm and its members in producing grain, and would harm the
development of grain-farming.

Thus, for example, economically sound State purchase prices were fixed for cotton and
other industrial crops, and this promoted an increase in their production. On the other hand low
State prices over a certain period of time for compulsory purchases and purchases by contract of
potatoes, vegetables, milk, meat and grain, hindered their production. The State prices paid for
these products were considerably increased in 1953-5, and this was a very important incentive to
their increased production.

The influence of the law of value on the light and food industries is
connected with the fact that the consumer goods which these branches produce
are commodities. The value of manufactured consumer goods includes the value
of the raw material produced as a commodity by the collective farms. Part of the
newly-created value of consumer goods is used to replace outlays on money
wages, and the remainder forms the income of the enterprise, received in money
form. In addition in the process of producing manufactured consumer goods:
means of labour; such as lathes, machines and factory buildings, are worn out.
These are not actually commodities; but since all the other elements entering into
the value of manufactured consumer. goods are expressed in a money form of
value, the means of labour, too, must be expressed and calculated in money.
Although the means of production manufactured in the State sector and
circulating within it are, essentially, not commodities, nevertheless in so far as
they retain the commodity form they also possess the value form. In this sense
one speaks of the value of the means of production, their cost of production,
price, etc. Here it should be borne in mind that these categories conceal the
relations of production of the State socialist sector which, in essence, do not have
a commodity character.

The fact of the matter is that in our socialist conditions economic

development proceeds not by way of upheavals, but by way of gradual
changes, the old not simply being abolished out of hand, but changing its
nature in adoption to the new, and retaining only its form: while the new
does not simply destroy the old, but infiltrates into it, changes its nature
and its functions, without smashing its form, but utilising it for the
development of the new. (Stalin, Economic Problems if Socialism in the
U.S.S.R., p. 59.)

In socialist society the value form of the means of production is of great

economic importance for the national economy.
The law of value influences the production of means of production through
consumer goods, which are needed to replace the expenditure of labour-power.
Consumer goods are commodities, and workers can get them only by buying
them with money from their wages. Hence the money form of value has also to
be used in the production of means of production, to keep account of all the other
elements which, combined with wages, are included in the industrial output costs.
The influence of the law of value on the production of the means of
production and consumer commodities is manifested through the system of
economic accounting, which is based on payment in money form for expenditure
of labour, and which stimulates an increase in the productivity of labour, and lower
costs and greater profitability of production. Knowledge of the operation of the
law of value and ability to use it assists economic workers to manage production
rationally, to improve methods of work consistently, and to find and make use of
hidden reserves to increase output.
The Socialist State uses the law of value in carrying out control, through the
financial and credit system, over industry and the distribution of the social
product.
The use of the law of value is of great importance in operating the economic
law of distribution according to work. The money form of wages is the means of
control over the measure of labour and over the measure of reward in socialist
society.
The restriction of the law of value, control over it, and its planned use are a
tremendous advantage which socialism has over capitalism. It is thanks to this
restriction that the operation of the law of value in the U.S.S.R. is not
accompanied by destructive consequences in the shape of crises, whereas under
capitalism the law of value, despite the low rates of development of industry in
the capitalist countries, leads to periodic crises of overproduction, to
unemployment and to the destruction of part of the productive forces.

Money and its Functions in Socialist Economy

The necessity of money in socialist society is determined by the existence of

commodity production and the law of value. Before the socialist revolution the
Socialists wrote that it is impossible to abolish money at once. . . . A great many
technical, and what is much more difficult and more important, organisational
gains are necessary in order to abolish money. In order to abolish money, it is
necessary to arrange the organisation of the distribution of products for hundreds
of millions of people, an affair of many years. (Lenin, The Deception of the
People by the Slogans of Equality and Freedom. Little Lenin Library, Vol. XIX, pp.
26, 35-6.)
Money fundamentally changes its nature in being applied to the needs of
the development of socialist economy. Under capitalism, money is turned into
capital and is a means of appropriating the unpaid labour of other people. In
socialist economy, on the other hand, money is a weapon of economic
construction in the interests of the mass of the people in accordance with the
requirements of the basic economic law of socialism. . It is an expression of the
socialist relations of production.
Under socialism money fulfils the role of universal equivalent in the national
economy as a whole. The money form is used not only. in the circulation of
consumer goods and those means of production that are commodities, but also in
the economic turnover of those means of production that are not essentially
commodities but which retain the commodity form. The unity of socialist national
economy, the indissoluble connection and relationship between the production of
means of production and the production of articles of consumption, between State
industry and collective farm production, requires a single measure to express and
measure the social labour expended On the production of what is produced. In
socialist economy, where two forms of socialist ownership exist, only money can
be such a universal measure of social labour.
Whereas under capitalism money serves as an instrument for the
spontaneous calculation of social labour, a calculation that is made behind the
back of the commodity producers through market fluctuations, in socialist
economy money is the economic instrument of the planned management of the
economy, and serves in the production and distribution of the social product.
Consequently, money in socialist society is the universal equivalent, the
economic instrument for planning the national economy, the means used for
universal accounting and control over the production and distribution of the social
product, over the measure of labour and the measure of remuneration.
The new nature of money under socialism is expressed in the fact that while
the old form is retained, there is a change in the social content and the purpose
of the functions of money compared with the functions of money under
capitalism.
Money has primarily the function of a measure of the value of commodities,
i.e., it measures the social labour embodied in them. In the conditions of
socialism, when two basic forms of socialist production exist, only a money form
can be used to express the results of the economic activity of an enterprise, to
compare the results of the work of enterprises and of branches producing
different goods, and to measure the volume of output of branches of the economy
and of the national economy as a whole. Since the means of production, although
they are not commodities, retain the form of commodity and value, money in its
function as a measure of value serves also as a means for keeping account of the
social labour expended on means of production.
Of course only a monetary commodity which itself has can have the function
of a measure of valuesuch as gold. In the Soviet Union and the other countries
of the socialist camp gold plays the part of universal equivalent. Soviet currency
has a gold content, being tokens of gold.
In socialist society money can only fulfil the functions of a measure of the
value of commodities by virtue of its connection with gold. Lenin connected the
abolition of gold money with the victory of socialism on a world scale. He said: In
the R.S.F.S.R., for the time being it is necessary to retain gold, sell it as dearly as
possible and to buy goods with it as cheaply as possible. (Lenin, On the
Significance of Gold at Present and after the Complete Victory of Socialism,
Works, Russian edition, Vol. XXXIII, pp. 89-90.) Soviet money retains the
historically derived connection with gold.

On the basis that gold is a universal equivalent, the Soviet State fixed a gold content for
the rouble in carrying out the currency reform of 1922-4. The gold content of the rouble was later
fixed indirectly, by establishing an exchange-rate for the Soviet rouble with first the franc and later
the dollar. In 1950, in connection with the increased purchasing power of the rouble and the
reduced purchasing power of the dollar and other capitalist currencies, the Soviet State fixed the
gold content of the rouble directly, at 0.222168 grams of gold. The exchange-rate of the rouble
with other currencies was raised to correspond with its gold content.

The Soviet State produces and accumulates gold as the universal money
used for trading both with the countries of the capitalist world market and with
the countries of the world market of the socialist camp.
The Soviet State uses money, in its function as a measure of value, as a
means for planned leadership, accounting and control over the course of
production and the distribution of the social product, as an instrument for carrying
out economic accounting. Thus, for example, by comparing the planned and
actual cost of production, the cause can be found why the actual cost of
production is in excess of the planned cost and the necessary measures devised
to reduce the cost of production and increase the profitability of the enterprise.
In its function as a measure of value money is used by the Socialist State in
the planning of prices. In socialist economy price is the money expression of the
value of commodities, and is established in a planned way.
In socialist economy money is also a pricing-unit. In the Soviet Union this
unit is the rouble.
In socialist economy money has the function of a means of circulation of
commodities. Money acts as a means of circulation in the purchase and sale of
commodities. The function of money as a means of circulation is used to extend
commodity turnover.
Money in socialist economy has the function of a means of payment. Money
acts as a means of payment when wages are paid out to workers and employees,
when loans are borrowed and repaid by socialist enterprises, when taxes are paid,
etc. The Socialist State uses money in its function as a means of payment to
supervise the work of socialist enterprises. For example, money is advanced to
enterprises by the bank to the extent that they fulfil their production plan. The
bank requires loans to be repaid promptly, and this provides an incentive to plan
fulfilment by the enterprise, which will not be able to accumulate sufficient money
to repay the loan without fulfilling the plan.
In socialist economy money has the function of a means of socialist
accumulation and saving. State enterprises and collective farms keep their money
in banks. The money incomes of enterprises and organisations, and their money
which is temporarily not in use, are used for the needs of socialist accumulation,
to extend production, to form reserves, and to meet the material and cultural
needs of the population. As a result of the improvement in the well-being of the
working people their money savings are increasing. These are kept in savings
banks.
In socialist society gold performs the functions of world currency. The gold
reserve is mainly a State reserve fund of world currency. In foreign trade, gold as
an instrument for buying and selling is a means of international accounting by the
State.
The stability of the Soviet currency is secured not merely by the gold fund,
but primarily by the huge quantity of commodities in State hands which are
released into the trade network at stable planned prices. In no capitalist country
does money have such a reliable backing as in the Soviet Union.

BRIEF CONCLUSIONS
(1) Commodity production in socialist society is made necessary by the
existence of two basic forms of socialist production: State and collective farm.
Commodity production and commodity circulation are limited mainly to consumer
goods. Commodity production in socialist society is commodity production of a
special kind, without private ownership of the means of production, and without
capitalists. It serves socialist society.
(2) A commodity in socialist economy has use-value created by concrete
labour, and value created by abstract labour. The contradiction between private
and social labour does not exist in socialist society. In socialist economy both the
creation of use-values and the improvement of the quality of output and also
systematic reductions in the value of commodities on the basis of the planned
reduction of the socially-necessary time spent on their production are of the
utmost importance.
(3) The sphere of operation of the law of value in socialist economy is
limited. The law of value is not the regulator of production, but influences
production and has a regulating influence on commodity circulation. The law of
value is used in the process of the planned management of the national economy.
The operation of the law of value is taken into account in the planning of prices.
(4) Money in socialist economy is a universal equivalent, an economic
instrument for planning the economy, a means for controlling and keeping
account of the production and distribution of the social product, the measure of
labour and consumption. Money has the function of a measure of value, a means
of circulation, a means of payment, and a means of socialist accumulation and
saving, a world currency. Soviet money is backed not only by the gold reserve but
primarily by the mass of commodities which is concentrated in State hands and
sold at State planned prices.
 CHAPTER XXXIII

WAGES IN SOCIALIST ECONOMY

Wages and the Economic Law of Distribution According

to Work

Lenin taught that socialism presupposes social labour accompanied by the

strictest accounting, control and supervision on the part of the organised
vanguard, the most advanced section of the toilers. Moreover, it implies that
standards of labour and; the amount of remuneration for labour must be
determined. (Lenin, Report on Subbotniks Delivered at the Moscow City
Conference of the R.C.P., Selected Works, 12-volume edition, Vol. VIII, p. 239.)
The workers in State enterprises receive this remuneration for labour in the form
of wages.
Wages in socialist economy are by their very nature quite different from
wages under capitalism. Since labour-power has ceased to be a commodity in
socialist society, wages are no longer the price of labour-power. They express, not
the relati6n between the exploiter and the exploited, but the relation between
society as a whole, in the shape of the Socialist State, and the individual worker
who is working for himself and for his society.
Since under capitalism wages are the price of labour-power, they usually
fluctuate, unlike the price of other commodities, below value. They do not always
enable the workers to satisfy even the minimum of their requirements. With the
abolition of the system of hired labour, the law of value of labour-power has
completely lost its validity as the regulator of wages. The basic economic law of
socialism necessitates the maximum satisfaction of the constantly growing
material and cultural requirements of the whole of society. The emancipation of
wages from the limitations of capitalism enables them to be extended to that
volume of consumption, which is permitted on the one hand, by the existing
productivity of society . . . and on the other hand, required by the full
development of his (the workers) individuality. (Marx, Capital, Vol. III, Kerr
edition, p. 1,021.) Real wages constantly rise in accord with the growth and
perfecting of socialist production. The requirements of the basic economic law of
socialism with regard to stimulating production and raising the well-being of the
working people are given effect through the law of distribution according to work.
In accordance with this law, each workers share in the social product is
determined by the quantity and quality of his work.
Wages are one of the most important economic instruments through which
each worker in socialist society is given a personal material interest in the results
of his work: he who works more and better also receives more. Consequently,
wages are a powerful factor in the growth of labour productivity, enabling the
personal material interests of the worker to be correctly combined with State
(national) interests.
The money form of wages is necessitated by the existence in socialist
economy of commodity production and the law of value. As has already been
stated, the consumer goods, which are necessary to compensate for the
expenditure of labour-power are produced and disposed of in socialist economy as
commodities, subject to the operation of the law of value. The money form of
wages allows of flexible and differential assessment of the workers share in the
social product, depending on the results of his labour.
Thus, wages in socialist economy are the monetary expression of the
workers share in that portion of the social product which is paid out by the State
to workers by hand or brain in accordance with the quantity and quality of each
workers labour.
The money wages of each worker by hand or brain are his individual wages.
The source of the individual wages of the workers engaged in socialist production
is the product created for themselves, and distributed according to work.
However, the standard of life of the workers by hand or brain in socialist society is
not determined by individual money wages alone. In addition to individual wages,
large funds are allotted by the State and social organisations for the social and
cultural needs of the working people, out of the product created by labour for
society.
In conformity with the requirements of the basic economic law of socialism
and the law of distribution according to work, the Socialist State plans the wage
fund and the wage level for different categories of workers for each period of
development.
 The wage fund is the entire sum of money resources allotted in a planned
way by the State for distribution according to work done over a given period of
time (a year, a month, etc.). This applies to the national economy as a whole,
and, to individual branches and enterprises.
In accordance with the requirements of the economic law of distribution
according to work done, the policy of the Socialist State in the field of wages is
based on the principle of all-round differentiation in the payment of labour. The
practice of equalising wages, which ignores the differences between skilled and
unskilled labour and between arduous and light work, is; incompatible with the
economic law of distribution according to the quantity and quality of labour. It
undermines the individual material incentive of the workers in relating to the
results of their work and their striving to improve their qualifications. Since skilled
work is work of a higher quality, it necessitates the training of the worker and is
more productive than unskilled work. Consequently it is also paid more than
unskilled work. Such a wage system encourages workers to improve their skill.
Under socialism, given equal skills, heavier work is paid more than lighter work.
Under the capitalist system on the contrary, workers employed in particularly
arduous manual labour are, as a rule, paid considerably less, than other workers.
Thus miners, who receive low wages in capitalist countries, are highly paid in
socialist society where, moreover, arduous labour is constantly, and to an
increasing extent, being lightened by the use of machinery.
In accordance with the economic necessity of giving the greatest
encouragement to work in the key branches of the national economy, higher
wages are fixed for workers in such branches of heavy industry as metallurgy,
coal, oil, engineering, etc. Other things being equal, the workers, engineering and
technical personnel are also more highly paid in enterprises and construction sites
situated in economic regions which are of special importance to the economic life
of the country, or in remote and sparsely inhabited districts. In this way, wages
become one of the economic instruments for effecting planned distribution and
re-distribution of skilled labour among enterprises and branches of social
production, in keeping with the requirements of the law of planned development
of the economy.
The wage policy of the Socialist State involves a struggle against petty-
bourgeois equalising tendencies and backward, anti-State and anti-mechanisation
influences.

Such economic practices as failure to effect the necessary wage differentiation contradict
the economic law of distribution according to work. Without such differentials skilled workers fail to
obtain wage advantages over unskilled workers. The same applies to persons engaged in arduous
work compared with workers engaged in lighter work or in normal working conditions. The
absence of the necessary differentials leads to equalisation and hinders the introduction of new
techniques and advanced methods of organising production.
Violation of the correct correlation of wages as between workers, middle rank technical
personnel and engineering cadres causes the wages of engineering and technical personnel, in
some enterprises and even in whole branches of the economy, to be lower than those of skilled
workers. Economically unjustified wage increases in individual branches and in economic regions
which are not of the first importance in the national economy hinder wage incentive measures in
those branches and districts which occupy key positions in the economy of the country.
The trade unions play an important role in applying wage policy. They
actively participate in the work of the State institutions in the working out of
measures involving labour organisation and wages, directly administer social
insurance, support the experience and initiative of innovators in production,
promote the development of socialist emulation and higher labour productivity;
improve cultural and welfare services and working conditions. With the active
participation of the trade unions, a collective agreement between the
management and the workers of each enterprise is concluded every year. The
collective agreement regulates all questions affecting work, wages and living
conditions. It binds both parties to take the necessary measures to secure the
correct remuneration of labour and the growth of its productivity, and also the
satisfaction of the growing cultural and living requirements of the workers in
socialist enterprises.

Forms of Wages. The Tariff System

The various systems of wages in socialist economy represent the concrete

ways in which the requirements of the economic law of distribution according to
work are satisfied.
 The piece-rate system is the main wage system in State socialist
enterprises. In 1954 more than three-quarters of all industrial workers were on
piece-rates.
In socialist economy piece-rates provide the worker with the maximum
interest in the results of his work. They differ fundamentally from capitalist piece-
rates which are based on unbearable intensification of labour and lead to higher
rates of surplus-value; while increasing the intensity of work, the workers wages
are lowered.
In socialist society, the size of each workers earnings depends directly on
the quantity and quality of his work. By securing increased earnings as output per
unit of time increases, piece-rates encourage higher labour productivity. They
stimulate full and rational utilisation of machinery, equipment, raw materials and
working time, the introduction of technical improvements and the best
organisation of work and production. Piece-rates also assist socialist emulation,
since high labour productivity brings high earnings.

The direct piece-rate system is the one most extensively used. Under this system wages
depend on the workers output in a given period, measured in number of articles, weight, length,
etc. Each unit of output is paid for at the same rate for the given type of work. The workers wage
increases in direct proportion to the increased quantity of his output of goods of the prescribed
quality.
Under the progressive piece-rate system of wages, the worker is paid the same fixed rate
for the fulfilment of the standard quota, but at other, higher and progressively increasing rates for
output above the quota. The greatest progression in rates is laid down for the key trades, for
workers employed in underground work, hot workshops and other arduous conditions. The
effectiveness of the progressive piece-rate system is lowered if there are so many pay scales that
they hinder calculation and assessment of the wage, and the establishment of a direct and visible
link between wages and labour productivity.. Its effectiveness is also lowered if there are
unjustifiably sharp differences in the rates for output above the quota in different branches of the
economy.
Under the piece-rate bonus system, the direct piece-rate is supplemented by bonuses for
achieving certain indices: economy of fuel and power, lower production costs, reduction of
spoilage, output of higher grade products, etc. In some enterprises bonuses for certain qualitative
indices are also applied in conjunction with the progressive piece-rate system.
In circumstances where production conditions make it impossible to apply individual piece-
rates (for example, simultaneous servicing of large machines or aggregates by several workers),
team or group piece-rates are applied. The individual members of the team receive a share of the
collective earnings after allowing for the time worked and the skill of each worker.

Stressing the need for consistent application of the principle of material

encouragement of efficient workers, the 18th Conference of the C.P.S.U. (B)
decreed that the bad practice of equalising in the sphere of wages must be finally
eliminated, and the piece and bonus systems must become, in still larger
measure, the most important means of raising labour productivity, and hence
also, of the development of our entire national economy. (The C.P.S.U. in
Resolutions and Decisions of its Congresses, Conferences and Central Committee
meetings, Pt. II, 7th Russian edition, p. 975.)
The time-rate system is used in those occupations where piece-rates can
either not be applied, or where they are economically unsuitable because of the
nature of the job (time-keepers, safety personnel, work on manufacture of unique
apparatus, control and inspection work, etc.). Time wages take the form of both
plain-time and time-plus-bonus payment.

The Plain-time system is built up on differential principles, depending on the duration of

working time and skill of the worker. In order to increase the material incentive of the workers
employed on time-rates, the time-plus-bonus system is applied. Under this system the worker
receives a bonus, in addition to the scale paid for the unit of time worked, for the achievement of
various quantitative or qualitative indices: reduction of time spent on repair of equipment,
economy of raw material, fuel or power, operation of mechanisms without breakdowns, reduction
of spoilage, etc.
The time-plus-bonus system is widely applied to managerial, engineering and technical
staff. The basic wage of this category of worker (the directors of enterprises, chief engineers,
departmental managers, foremen, etc.) is his monthly salary, which varies with the size of the
enterprise (department, shift, etc.), its national economic importance, his length of experience,
etc. In addition to the basic salary, managerial, engineering and technical staff receive a definite
percentage bonus-addition for fulfilment and over-fulfilment of the production plan by the
enterprise, in terms of marketed output, provided that the planned output of gross output is
fulfilled, and the prescribed assortment and planned production costs are observed.
The wages of teachers, medical workers and employees in State institutions also differ in
accordance with the character of the work, educational standard, period of service and various
other indices.

Comprehensive differentiation of wages, taking into account the workers

skill, the productivity of labour and the quality of his output, is effected by means
of the rating of work and a definite grading system.
Rating of work is the establishment of the standard time required to carry
out a given job (time standard), or the size of output per unit of time (output
standard). It is impossible to plan the economy without technical standards.
Correct rate-fixing is one of the most important factors in managing the
production process, improving labour organisation and raising its productivity,
getting rid of equalising tendencies and developing socialist emulation. Technical
standards are an important regulating factor in organising the broad mass of the
working people around the advanced elements in production and bringing the
backward ones up to the level of the more advanced.
Socialist methods of management require aiming at progressive and
technically justified output standards, which are fixed at a level falling between
those which have already been achieved by the majority of workers, and those
which have been attained by the best workers and innovators, and the most
advanced enterprises. Capitalist output standards are a method of unrestrained
intensification of work which destroys the health of the workers and shortens their
lives. In socialist enterprises, on the contrary, they are laid down in such a way
that while progressive, they are at the same time fully within the reach of the
whole mass of workers.
The introduction of progressive output standards is being achieved in the
course of a decisive struggle against conservative elements who cling to out-
dated and lowered standards, thereby retarding labour productivity and the
successful fulfilment of plans. The so-called statistical-average standards, in
particular, are examples of such backward standards, since they do not allow for
progress in technique and production organisation. They are based on the worker
with poor mastery of technique, and legitimise unproductive losses of working
time. Continuous, technical improvement requires periodic upward review of
output standards. Correct rating of work must reflect the growth in technical
equipment and the rise in the cultural and technical level of the workers. The
interests of socialist society and of the mass of the workers demand the
introduction of progressive and technically justified standards which fully
correspond to the modern level of production technique and act as a strong factor
in raising labour productivity.
The evaluation of each type of work, depending on the skill of the worker,
the nature of the work, and the conditions and peculiarities of the particular
branch of production, is reached on the basis of the grading system. Wage levels
in different branches of the economy and for different categories of workers are
determined on the basis of this system.

The main elements of the grading system are schedules of grades, skill-grading handbooks
and the scale of basic rates.
Wage differences in accordance with the workers skill are arrived at on the basis of the
schedules of grades. Workers are divided, according to their skill, into several grades. The
unskilled worker is placed in the first grade and his payment is taken as the unit of assessment.
The higher the skill of the worker, the higher is the grade into which he is placed, and
correspondingly the higher is his payment.
The description of the various jobs carried out in a particular branch of industry is laid down
in the skill grading handbooks. These serve as the basis for assessing the skill of the worker, and
for placing him in one of the grades in the schedule of grades.
The scale of basic rates prescribes the size of payment per unit of time appropriate to the
different grades. The scale of basic rates enables the Socialist State to fix differential wages which
take into account the national economic importance of each branch of industry, the degree of
mechanisation of labour, the particular features of different economic areas, etc. The July, 1955,
Plenum of the Central Committee of the C.P.S.U. revealed grave defects in the organisation of
wages, especially in the rating of work and the, application of the schedule system. Thus, in a
number of enterprises, reduced statistical average rates were in force; schedules and scales were
out of date and lagged behind the increased level of wages; various additions to the scales and
basic rates were impermissibly widespread; differences between the pay of workers placed in the
lower and higher categories were insignificant. Multiplicity of wage systems complicates wage
accounting, makes the wage system hard for the workers to understand, and gives rise to lack of
co-ordination in the wages of workers engaged in one and the same kind of work.
All this reduces the incentive to the workers to improve their skill, produces equalisation of
wages and hinders the growth of labour productivity.

A correct structure of the grading system enables wages to be organised in

such a way that they will stimulate the growth of the productivity of labour and
the workers incentives to improve their qualifications.
The July, 1955, Plenum of the Central Committee of the C.P.S.U., which
exposed defects in the organisation of wages, decided that: The Leninist principle
of giving the workers a material interest in the results of their work must be
consistently realised in the organisation of wages. Technically well-founded rates
of work must be generally applied in the enterprises, rates which correspond to
up-to-date levels of technical development and production organisation. The
organisation of labour in the enterprises must be improved so as to provide all
workers with the conditions needed to achieve a high degree of productivity of
labour. (Decisions of the July, I955, Plenum of the C.C. of the C.P.S.U., p. 17.)

The Steady Rise of Real Wages in the Socialist System

In accordance with the basic economic law of socialism, the socialist system
provides a steady rise of real wages.
The continuous growth of socialist production based on the highest
technique and increased labour productivity is the most important economic
factor in the rise of real wages.
To enable socialist society to thrive and develop, higher labour productivity
must constantly run ahead of the growth of wages. Only under these conditions
can society obtain the necessary resources for expanding production and
reserves, and for ever fuller satisfaction of the growing needs of the working
people. The continuous growth of labour productivity and social production is a
secure foundation for the further rise of real wages; the rise of real wages
increases the purchasing power of the working people, and this in its turn
provides social production with a constant impelling force.
The continuous growth of socialist production leads to a systematic increase
in the number of manual and clerical workers. In the U.S.S.R. their numbers
increased from 10.8 millions at the end of 1928 to nearly 47 millions at the end of
1954-a more than four-fold increase, accompanied by a considerable increase in
real wages. Under capitalism the need to maintain a reserve army of unemployed
lays a heavy burden on working-class families and lowers the real wages of the
working class as a whole. In socialist society the working class and society as a
whole are freed from this need by the absence of unemployment. Increasing
production makes work available to all able-bodied members of the family, and
this considerably increases its total income.
The working people of socialist society are freed from those enormous
losses in wages borne by the working class of capitalist countries as a result of
various wage discriminations according to sex, age, nationality and race.
In socialist society the principle of equal pay for equal work without
distinction of sex, age, nationality or race has been achieved for the first time.
Child labour in socialist economy is prohibited. The genuine equality of women is
guaranteed by equal pay for equal work, provision of leave at full pay during
pregnancy, a wide network of maternity hospitals, crches and kindergartens, and
payment of State grants to mothers of large families and to mothers without
breadwinners. Any direct or indirect wage discrimination whatsoever because of
the racial or. national origin of the worker is punishable as a serious crime.
The steady rise of wages in socialist society results also from the growth in
the cultural and technical level of the workers and the raising of their skill. With
the development of industrial techniques in the capitalist system, considerable
strata of skilled workers are squeezed out by machines and transferred to lower
paid, unskilled work. Moreover, workers who have been disabled by the capitalist
intensification of labour are forced out of industry and into the ranks of the
unemployed, to be replaced by healthier and stronger workers. In socialist society
the growth of production is inseparably connected with rapid technical progress.
The old occupations involving heavy manual labour are being replaced by new,
more skilled and more highly paid ones, based on the latest techniques. In order
to encourage steady and conscientious work in the same sphere of industry, the
Socialist State pays out large sums every year m the form of long-service awards
to various categories of workers in different branches of the national economy,
cultural workers and State employees.
The consistent policy of the Socialist State of reducing prices for consumer
goods and raising the purchasing power of money is a major factor in the steady
growth of real wages.

The reduction of retail prices for the chief consumer goods, between 1947 and 1954,
lowered the general level of these, prices 2.3-fold, and gave the population a gain of several
hundred milliards of roubles. In the same period the rise in prices in the capitalist countries raised
the cost-of-living index, according to official data, 21 per cent in the U.S.A. and 40 per cent in
Great Britain.

With the nationalisation of the land, the enormous tribute which under
capitalism the owners of urban land extract from society, in the form of land rent,
has disappeared. In capitalist countries the cost of rent, heating and lighting
absorb about one-quarter of earnings, in the budget of a workers family. Under
socialism, thanks to the social ownership of the land, the urban housing fund and
municipal amenities, rents and other municipal services occupy a very small place
in the budgets of workers families. In the U.S.S.R. they account for an average of
little more than 4 per cent, and are thus a real factor in raising the level of real
wages.

In the Soviet Union the extensive scale on which housing is being built systematically
improves the living conditions of the working people. Between 1946 and 1954 alone about 2,370
million square feet of housing space1 were built and restored by State enterprises, institutions and
local Soviets, and also by the population of towns and workers settlements with the assistance of
State credits. In addition, about 4 million houses were built and restored in rural localities. In
order to satisfy the growing demands of the population for housing the work of house-building
must be further developed on an extensive scale and the quality of housing improved.

The manual and clerical workers of socialist society are freed from the
heavy burden which the working masses of the capitalist countries are compelled
to bear as a result of the tax policy of bourgeois States. In the capitalist
countries, high taxes sharply reduce real wages. In the U.S.S.R. the workers
expend only an insignificant part of their wages on taxes. Moreover, taxes are
used to meet the needs of the national economy and on social and cultural
1
This figure includes only dwelling-space proper, i.e., it does not include kitchens, sculleries,
bathrooms, lavatories, halls and passages.Editor, English edition.
services.
The ever-increasing resources expended by the Socialist State on social and
cultural measures in the interests of the whole people are a very important
supplement to the individual money wage.
In socialist society social insurance of manual and clerical workers is
compulsory, and is provided at the expense of the State. In the capitalist world on
the other hand, social insurance is to be found in only a few countries, and in
these the workers are obliged to pay a considerable portion of the insurance
contributions from their own wages. Expenditure by the Soviet State on social
insurance were 8.9 milliard roubles in the first Five Year Plan, 32.1 milliards in the
second, 79.1 milliards in the fourth, and more than 92 milliard roubles in the first
four years of the fifth Five-Year Plan.
In the U.S.S.R. the manual and clerical workers receive, at the expense of
the State, social security pensions, free medical assistance, free or reduced-cost
treatment in sanatoria and holidays in rest homes and childrens institutions, free
education and vocational training, and student stipends. Every worker and
employee has an annual holiday on full pay of not less than two weeks, while the
workers in a number of trades have longer periods.

Between 1940 and 1954 expenditure out of the State Budget of the U.S.S.R. on social and
cultural measures increased nearly three and a half times. State allocations for education
increased from 22.5 milliard roubles to 65.6 milliards, for health services (including expenditure
for this purpose out of social insurance funds) from 11.2 milliard roubles to 33.5 milliards, and for
social welfare from 3.1 milliard roubles to 24.2 milliards. In addition, vast resources are expended
on benefits to mothers of large families, and to mothers without breadwinners; in 1954, for
example, such benefits amounted to 4.7 milliard roubles. In 1954 the population received from the
State Budget, as a result of increased State expenditures in social and cultural services and other
expenditure for the purpose of raising the material welfare of the working people, 146 milliard
roubles.

In this way, many of the material and cultural requirements of manual and
clerical workers are met out of expenditure by the State and social organisations
on social and cultural services.
This is an important factor in the steady rise of real wages. As a result, the
real wages of manual and clerical workers in the U.S.S.R. are approximately one-
third larger than the sum which they receive annually as individual money wages.
The Socialist State holds all the levers affecting the material welfare of the
working people and applies a policy of systematically raising real wages. As early
as 1930, the real wages of the workers, taking into account social insurance and
deductions from the net incomes (profits) of enterprises into the fund for
improving living conditions, had risen to 167 per cent of 1913: In 1954 the
average monthly wage of all manual and clerical workers in the U.S.S.R. was 206
per cent of the 1940 level. The retail price level in State, co-operative and
collective farm trade, together with charges for rents and all forms of services,
amounted in 1954 to 118 per cent of the 1940 level. Consequently the real wages
of all manual and clerical workers and employees in the U.S.S.R. had increased
between 1940 and 1954 by 74 per cent. When account is taken of the growth of
State expenditure on cultural, social and living amenities, the real wages of
manual and clerical workers had more than doubled in the same period. The real
wages of manual and clerical workers in the U.S.S.R. in 1954 were approximately
six times as high as before the Revolution.
This growth in the real wages of the workers of the U.S.S.R. compared with pre-
revolutionary times has been brought about by a number of factors. Money wages have risen a
great deal more than prices or the cost of services. The share of workers expenditure constituted.
by rent and payment for municipal services, which before the Revolution amounted to a third of
wages is now only about one-sixth of what it was. Besides their individual wages the workers of
the U.S.S.R. receive considerable sums from the State in the form of social insurance benefits,
various forms of aid, privileges, pensions, grants, holiday pay, free education, medical attention,
etc. Before the Revolution the workers received hardly anything beyond their individual wages,
and as a rule had no paid holidays. In calculating real wages it is to be taken into account that
unemployment has been completely abolished in the U.S.S.R., so that all able-bodied members of
the workers families can find work, which has led to a sharp reduction in the number of non-
working members in these families. Finally, it must be kept in mind that the working day in the
U.S.S.R. is considerably shorter than it was in pre-revolutionary Russia and so a worker receives a
higher pay for each hour of labour.

The steady rise in real wages brings improved nutrition of the working
people in socialist society, increased consumption of manufactured goods by
them, and an increase in their savings. Deposits of the working people in savings
banks were 67 times more in 1954 than in 1940. In the conditions of socialist
society, where the right to work, rest, material security in old age, or in the event
of sickness and loss of earning capacity, is guaranteed, increased savings are a
direct indication of the rise in living standards.

Our revolution, said Stalin, is the only one which not only smashed
the fetters of capitalism and brought the people freedom, but also
succeeded in creating the material conditions of a prosperous life for the
people. Therein lies the strength and invincibility of our revolution. (Stalin,
Speech at the First All- Union Conference of Stakhanovites, Problems of
Leninism, 1953, English edition, p. 670.

BRIEF CONCLUSIONS
(1) In socialist society wages are the monetary expression of the workers
share of that portion of the social product which is paid out by the State in
accordance with the quantity and quality of each workers labour. Arising from the
requirements of the basic economic law of socialism and the law of distribution
according to work, the Socialist State plans the wages of the various categories of
workers in each particular period. It does so in such a way that alongside the
growth of the national economy and increased labour productivity, the wage level
is systematically increased.
(2) Wages, correctly organised, are a powerful motive force of socialist
production. They encourage workers to improve their skill, continuously to
improve the technique and organisation of production, and to raise the
productivity of social labour. Piece-rates in socialist society most efficiently
combine the personal material interests of the worker with national economic
interests. The following systems of piece-rates are used in socialist society:
simple piece-rates, progressive piece-rates, and piece-rates-plus-bonuses. Time-
rates depend on the length of time worked and the skill of the worker.
(3) The purpose of the grading system in socialist economy, is to organise
wages in such a way that they stimulate the growth of the productivity of labour,
especially in the key links in the process of production and encourage workers to
improve their skill. Progressive and technically justified output standards
correspond to socialist principles of management. The wage policy of the Socialist
State is being carried out in the course of a struggle against petty-bourgeois
equalising tendencies. This policy is based on all-round wage differentiation:
higher pay for skilled and arduous work, and for workers m leading trades and
branches of the national economy.
(4) The basic economic law of socialism determines a steady increase in
real wages. Factors in raising real wages are: continuous growth of socialist
production and productivity of labour in the complete absence of unemployment;
systematic reduction of the price of consumer goods; the rise of the cultural and
technical level of the workers, and of their skill; improved housing conditions of
the working people. The individual money wage of manual and clerical workers is
supplemented by large assignments from the State and from public organisations
for social and cultural measures. These are an important means of raising real
wages.
 CHAPTER XXXIV

ECONOMIC ACCOUNTING AND PROFITABILITY.

COSTS AND PRICE

Economic Accounting and the Profitability of Enterprises

The economic structure of socialism is free from the contradictions of

capitalism, which lead to a tremendous waste of materials and labour. The
socialist system of planning the national economy makes possible and necessary a
much greater saving in means of production and labour than in all preceding
modes of production.
All the various forms of economising in society can be reduced in the last
resort to savings in labour time, to economy in living and past labouri.e., they
imply the growth of the productivity of social labour. The less time required by
society to produce wheat, cattle, etc., Marx wrote, the greater the time gained
for other production, material or spiritual. Both for each individual and for society,
all-round development, consumption, and activity depend on the saving of time.
(Marx-Engels Archives, Russian edition, Vol. IV, p. 119.)
Economy in labour-time is objectively necessary for socialist society. It is
one of the main factors which make the uninterrupted growth of production
possible. This makes it enormously Important for socialist economy systematically
to observe a regime of economy. The regime of economy is a principle of socialist
economic management; it consists in saving, in the interests of society as a
whole, working time, materials and money, in all enterprises and institutions.
One of the basic tasks of the Socialist State in its economic organising work
is to bring about the strictest economy of resources.
The Communist Party and the Soviet State rally the mass of the people in a
struggle for economy, so that every hour of social labour which is expended, and
every unit of equipment, fuel, power and raw materials, will lead to ever-
increasing output. In the capitalist system, economy in production outlays is
obtained at the expense of the working people, by worsening their working
conditions and by increased exploitation. As against this, economy of expenditure
of labour and material resources in a socialist system serves the interests of the
whole of society and leads to improvements in the position of the working people;
it is therefore the affair of the whole people.
Economy of both living and congealed labour is effected in socialist society
by means of economic accounting. Lenin pointed out that socialism can be built,
and tens of millions of people can be led to communism, not directly relying on
enthusiasm, but aided by the enthusiasm engendered by the great revolution,
and on the basis of personal interest, personal incentive and economic
accounting. (Lenin, The fourth anniversary of the October Revolution, Selected
Works, 1950, English edition, Vol. II, Pt. 2, p. 601. [N.B.The words business
principles, used in the edition quoted, are here replaced by economic
accounting, a more precise rendering of the Russian original.Editor.]) Economic
accounting is a method of planned economic management in socialist enterprises,
based on the operation of the law of value: it requires the comparison of the input
and output of economic activities in money terms, compensation for the
expenditure carried out by an enterprise out of its own income, economy of
resources, and ensuring that the enterprise is profitable.
Economic accounting is based on the utilisation of the law of value. As was
stated above, in socialist society the input and output, the income and
expenditure of socialist enterprises, are expressed and measured in a value and
money form. Economic accounting is the method of socialist management which
makes it possible, using the money form of value, to calculate so as to compare
the expenditure of an enterprise with its income and disclose its profits or losses.
Economic accounting presupposes the need to compensate enterprises for
their expenditure by income from the sale of their products at prices laid down by
the State. This expresses how the requirements of the law of value are taken into
account.
Economic accounting is aimed at achieving the best economic results for the
smallest expenditure, ensuring the profitability of enterprises through economy
and rational utilisation of resources. Profitability means that the receipts of an
enterprise from selling its output replace its costs and provide an extra income in
addition. Profitability is one of the most important indications of the economic
effectiveness of the work of an enterprise in a particular period. The
profitableness of individual plants and industries is of immense value for the
development of our country. It must be taken into account both when planning
construction and when planning production. It is an elementary requirement of
our economic activity at the present stage of development. (Stalin, Economic
Problems of Socialism in the U.S.S.R., 1952, p. 62.)
Economic accounting provides a material stimulus to improvement in the
economic activity of an enterprise, fosters a spirit of rational conduct of the
enterprise in its leaders and other workers, disciplines them, teaches them to
calculate exactly the amount they produce, to introduce advanced technique, to
raise the productivity of labour, to lower costs of production and to increase the
profitability of the enterprise.
Based as it is upon the operation of the law of value, economic accounting
is at the same time the means of realising the requirements of a basic economic
law, the law of planned development of the national economy, and other
economic laws of socialism.
Economic accounting, which stimulates economy in working time and the
mobilising of the internal reserves of enterprises, contributes to the continuous
growth of socialist production on the basis of the application of advanced
technique and steady raising of the productivity of labour in the interests of the
fullest satisfaction of the growing demands of society as a whole, of the working
people.
Economic accounting is the necessary condition for realising the
requirements of the law of planned, proportional development of the national
economy. It is used as an instrument of the State for planned guidance of
enterprises. Economic accounting has the task of ensuring the fulfilment and
over-fulfilment of the State plans with the least expenditure of labour and means
of production, with a rational use of all resources. It serves as a means for
checking on the fulfilment of plans in both quantitative and qualitative respects.
In socialist economy, over and above the profitability of particular
enterprises and branches of production, a higher measure of profitability,
inaccessible to capitalism, is attainedprofitability on a national scale. This
signifies that profitability is determined not only from the point of view of
particular enterprises and branches of production, and not only within the limits of
a single year, but also from the point of view of the whole national economy and
over a long period. At the same time an increase in the profitability of individual
enterprises and of whole branches of the economy is a necessary condition for
acceleration of the rate of development of the whole national economy.
In socialist economy, as already mentioned, in addition to profitable
enterprises, there may be enterprises which are of great national economic
importance, but which are temporarily unprofitable and even making a loss. The
Socialist State supports them by State subsidies, and at the same time takes
steps to make them profitable.

Thus, during the 1941-5 war, the system of covering the losses of heavy industry by
subsidies was inevitable. But it hindered economic accounting, and weakened material incentives
to reduce output costs. Therefore the system of subsidies was abolished after the war (from 1
January, 1949). This was done by increasing labour productivity and reducing costs, and also by
temporarily raising output prices in certain branches of heavy industry. Wholesale prices were fixed
to correspond with costs. The abolition of subsidies assisted and improved economic accounting,
provided incentives to economise in labour and material outlays in industrial production, and
established suitable conditions for the subsequent reduction of wholesale prices.
The strengthening of economic accounting demands of the economic organs a struggle for
the fulfilment of their accumulation plans by all enterprises; it is incompatible with the practice of
taking resources from enterprises which are working well and transferring them to those which are
working badly.

Economic accounting expresses the inter-relationship between the Socialist

State and its enterprises, and also the relations between individual enterprises.
Economic accounting is based on the combination of centralised
management of socialist enterprises by the State with economic independence of
operation for each enterprise. An enterprise is independent in its economic
operation in that it receives and has at its disposal State-owned resources, both
material and financial, and can exercise considerable initiative in the most rational
use of them for the best possible achievement of planning targets.
 The Socialist State distributes means of production among its enterprises and provides
each of them with sufficient resources in materials and money to fulfil their plan. The enterprise,
as a juridically independent economic unit, enters into economic relations with other enterprises
and organisations, recruits its skilled workers, and organises its own production, supplies, and
sales. It has a current account in the State Bank where it deposits its money resources; it also has
the right to receive bank credits, and has an independent balance-sheet.
The independent economic operation of State enterprises takes place within
the framework of public: ownership of the means of production: the Socialist
State continues to own the means of production which it has transferred to the
use of a particular enterprise. It arranges the connections between different
enterprises in a planned way, taking into account the part played by each of them
in the general system of the national economy. The relations between socialist
enterprises are not competitive, as under capitalism; they are relations of
collaboration in fulfilling public tasks.
Economic accounting implies that an enterprise and its management are
responsible to the State for fulfilling the plan and for using resources rationally.
The enterprise is responsible for paying wages to manual and clerical
workers on time and in the right amounts, for making payments due to the State
Budget on time and in full, and for making proper use of Budget appropriations
and bank loans which it receives.
Economic accounting also implies that the enterprise is materially
responsible to other enterprises and economic organisations for meeting its
obligations.
Economic relations between enterprises are regulated with the aid of
economic contracts. Enterprises acquire the means of production they need, and
sell their output, by contracts which conform with the general State plan.

The contract sets out: delivery conditions; the amount, variety, and quality of output; times
of delivery; the price; times and methods of payment; and forms and extent of responsibility for
violating the conditions of the contract. It fixes material penalties for breaches of its provisions.

One of the most important requirements of economic accounting is that

contract discipline should be strictly observed by enterprises.

Economic accounting is based on the material interest of the enterprise, and

of its workers and managerial personnel as a body, in fulfilling the plan, in
increasing production continuously and rapidly, in economical and rational
management, and in making the enterprise profitable.
This material interest of an enterprise and its workers in plan fulfilment and
in improving production is made possible primarily by the fact that the enterprise
receives money according to the results of its economic work. Further, part of the
income, or profit, remains at the disposal of the enterprise and is used to
supplement circulating funds, for capital investment, to improve the cultural and
living conditions of the clerical and manual workers and to reward the best
workers.
Economic accounting is connected with the utilisation of the economic law of
distribution according to work. Distribution according to work provides personal
material incentives to the workers to increase labour productivity and economise
resources, and leads to a strengthening of economic accounting. In its turn
economic accounting facilitates the systematic application of the law of
distribution according to work, and the improvement of the well-being of the
working people. The higher the income of an enterprise, the greater its
possibilities of rewarding its workers by improving their material position and
cultural and living conditions and rewarding workers who are foremost in
productivity. The more effective economic accounting becomes, the more widely
bonuses far economising resources can be paid.
Economic accounting presupposes constant rouble control of the work of an
enterprise and its separate sections. Rouble control means that the quality of the
work of an enterprise is disclosed by the indices of its economic activity expressed
in money (costs, profitability, etc.). The enterprise receives its money according
to the quality of its work and the extent to which it fulfils the plan. It is required
to make its statutory payments an time (returning loans to the bank, payments
into the Budget, etc.). It has to settle its accounts with other enterprises
(suppliers or purchasers) on time, in conformity with its contracts. Rouble control
over the work of enterprises is carried out by economic organisations, financial
institutions and the banking system. Mutual rouble control is carried out by
enterprises which have signed contracts with each other. Within an enterprise,
rouble control is carried out by keeping accounts of its input and output and
comparing them in money terms.

The rational organisation of socialist production requires that elements of economic

accounting should be used in shops and production departments within each enterprise. The shop
and the department are parts of the enterprise which have some independence in production
technology, but are not independent in their economic operation as the enterprise itself is.
Economic accounting is therefore used here only to a limited extent. Elements of economic
accounting which are used in shops and departments include accounts of their expenditure in
money form, comparison of this expenditure with targets laid down by the plan, and material
rewards to those workers who have achieved the best results in economising resources.

Systematic enforcement of economic accounting increases the material

interest of the enterprise and its workers in production results and in fulfilling the
plan, and thus helps to increase productive activity and socialist emulation by the
mass of workers, aiming at the full and rational use of resources, and at the
careful and prudent management of the economy. Economic accounting seeks to
improve continuously the utilisation of all funds at the disposal of enterprises.

Funds of Enterprises. Fixed and Circulating Funds

Material and money resources issued to, a State enterprise are public
property and constitute the funds of these enterprises. Means of production are
the production funds of enterprises. As has been shown, the means of production
of State enterprises in the U.S.S.R. are not in essence commodities; but they
retain the form of commodities, of values, they appear not only in physical but
also in money form, and have prices. The distribution of means of production is
effected not by supply free of charge but by their being sold for money. In this
sense, circulation of means of production takes place; consequently these funds
go through a continuous process of planned turnover, passing in turn through the
production and circulation stages. In conformity with this they change their form
the money form changes to the productive; the productive to the commodity
form, the commodity to the money form, and so on. According to the character of
the turnover, the production funds of an enterprise are divided into fixed and
circulating.
Fixed funds serve production over a long period, retaining their physical
form. The value of fixed funds enters production outlays gradually, in parts, to the
extent that these funds are worn out.
Fixed production funds include the means of labourproduction buildings,
installations, machines, durable tools and implements, and means of transport.
Circulating funds are entirely consumed in the production process during a single
production period, and their value is fully expended in the outlays on producing
the commodity concerned. The circulating production funds of an enterprise
include raw and other materials, fuel, semi-manufactures, and other objects of
labour. Fixed funds are the production apparatus of socialist society; their volume,
and the degree to which they are put to use, are an important factor influencing
the amount of output produced.
The planned development of technique under socialism demands that the
economic effectiveness of the introduction into production of each new type of
machine be considered from every standpoint, together with the prospects of its
further utilisation.
The invention and putting into use in production of new, more productive
and economical machines means that the machines now out-of-date become
morally depreciated before the time for their physical depreciation is up. The
conception of moral depreciation of machinery in socialist society is very
important, since the rapid tempos of technical progress demand that out-of-date
technique be replaced without delay by new, and new by newer still. The moral
depreciation of machines under socialist conditions differs in principle from the
moral depreciation of machines under capitalism. The replacement of obsolete
equipment by new takes place under socialism not spontaneously or through
competition but in a planned way, so that these replacements do not lead to the
ruin of small and medium enterprises and are not accompanied by the wastage of
productive forces that takes place under capitalism. The planned conduct of the
national economy creates extensive possibilities for the rational use of all
available technique.
To replace fixed funds as they are worn out the enterprise has a
depreciation fund. Allocations for depreciation should ensure constant renewal of
the production apparatus. The depreciation fund is formed by including a definite
part of the value of the fixed funds, corresponding to the extent to which they are
used up, in the outlay on every unit of output. Part of the resources of the
depreciation fund (the amount is fixed by the State) is used in planned fashion to
replace fixed funds which have gone out of use, and the rest remains at the
disposal of the enterprise to be expended on capital repair of the existing fixed
funds.
In addition to funds in the sphere of production, enterprises possess
resources functioning in the sphere of circulation, or funds of circulation. These
consist of finished output ready for sale, and the money resources of the
enterprise, required for purchasing raw materials and fuel, for paying wages, etc.
Circulating production funds and funds of circulation taken together
constitute the circulating resources of an enterprise. The circulating resources of
an enterprise are divided into its own and borrowed resources. These are both
formed in a planned way.

An enterprises own circulating resources are allocated to it by the State to cover its
minimum needs. It also needs supplementary or temporary circulating resources; for example, it
has to acquire seasonal stocks of raw material and fuel, and it has to finance goods in transit.
These are covered by borrowed resources (State Bank credits), for the use of which the Bank
charges a fixed rate of interest. This system of allotting circulating resources encourages the
enterprise to use them as rationally and economically as possible, and to speed up their turnover.

The socialist system of economy ensures the continuous growth of fixed and
circulating funds and makes it possible to make considerably better use of them
than capitalism does. The State fixes standards which are obligatory for the
enterprisesprogressive technical, and economic standards of utilisation of
machines and equipment, standards of consumption of raw materials, fuel and
other elements of the circulating fund per unit of finished output (iron ore and
coke per ton of pig-iron, sugar-beet per ton of sugar, etc.) and standards of
stocks for each constituent part of the circulating fund and of the finished output.
The correct fixing of these standards is an important factor in the systematic
raising of the level of utilisation of the fixed funds and circulating resources.

In the iron and ,steel, enterprises of the U.S.S.R. the effective utilisation of blast-furnaces
was in 1940 nearly double what it had been in 1913. In 1954 the utilisation of blast-furnaces was
43 per cent and of open-hearth furnaces 48 per cent above the 1940 level.

The velocity of turnover of circulating resources is one of the main

qualitative indices of the economic activity of an enterprise.
The velocity of turnover of the resources of an enterprise depends, firstly,
on the time of production, in the course of which these resources are in the
sphere of production, i.e., in the form of production stocks, unfinished production,
or semi-products, and, secondly, on the time during which these resources are in
the sphere of circulation (in the form of stocks of output ready for sale, etc.)
Increasing the velocity of turnover of circulating resources is of great
importance in giving effect to the regime of economy and in freeing
supplementary resources for increasing production. Accelerating this turnover is
an important factor for the enterprise in fulfilling its output and accumulation
plan, and ensures the fulfilment of the plan with a smaller amount of circulating
resources.
 Accelerating the-turnover of circulating resources demands reduction in the
time of production and the time of circulation and a constant struggle against the
formation of surplus (above standard) stocks of raw material, semi-products and
finished products. Reduction of the production cycle is achieved by accelerating
the production processes on the basis of using advanced technique, applying the
latest achievements of science to production and improving the organisation of
labour. The time of circulation is reduced by increasing the quality of transport
work and by more rational organisation of the supplying of the enterprise and the
marketing of its products.
Socialist emulation is of great importance in strengthening economic
accounting and in increasing the velocity of turnover of circulating resources. The
use of circulating resources by State enterprises is made considerably more
effective by reducing the production cycle, by improving the organisation of
supplies to the enterprises and of the sale of their output, and by reinforcing
financial discipline.
In addition to production funds and funds of circulation, enterprises also
have fixed funds which serve the consumerhousing, clubs, and other social and
cultural buildings and amenities with their equipment.
Economical and effective utilisation by socialist enterprises of their fixed and
circulating funds makes it possible to increase the volume of output and to reduce
its cost.

Production Costs

In socialist society all expenditures of social labour on making a particular

product are social production outlays. The social outlays on the production of
commodities constitute the value of those commodities. Production outlays on the
means of production are also expressed and measured in a value or money form.
Social production outlays in socialist society consist of the following three parts:
(i) the value of used-up means of production; (ii) the value of the product created
by labour for itself; and (iii) the value of the product created by labour for society.
The first two parts of the social outlays of production enter into production
costs in socialist enterprises. Production costs are the expression in money terms
of that part of the value of production which makes up the expenditure of an
enterprise on used-up means of production and on wages. Costs therefore
embody both past labour included in the used-up means of production, and that
part of the newly-expended labour which creates the product for itself.
The category of production costs in socialist enterprises must not be
confused with the category of capitalist production outlays. It does not express
outlay of capital. Savings in capitalist production outlays are achieved by
increasing exploitation of the working people, but reduction in production costs in
socialist economy expresses saving in social labour in the interests of the whole of
society.
Production costs show what, concretely, it costs a particular enterprise to
manufacture and market its products. The calculation and planning of costs are a
very important condition for the realisation of economic accounting.
The value of used-up means of production is reflected in production costs
through prices for equipment, raw material, fuel, etc., which may deviate from
value.
In practice, production costs in State enterprises consist of (i) outlays on
raw and other materials, fuel and power, used up in production; (ii) depreciation
charges; (iii) wages of manual and clerical workers, with the additional charges
calculated on the basis of wages paid; (iv) various money expenditures for
administrative and management purposes and credit payments. The additional
charges to wages and credit payments are the expression in money of part of the
product for society.
The inclusion in costs of certain elements of the value of the product for
society is connected with economic accounting, being caused by the need to
separate off as a special category the monetary expenditure of enterprises on the
production and realisation of their products, regardless of the sources of this
expenditure.

There are two main forms of industrial production costsfactory or works costs, and full
(or commercial) costs. Factory or works costs cover the expenditure of an enterprise on the
production of its output. Full costs consist of factory costs plus expenditure with sale of output
(maintenance of sales offices and bases, charges, and the expenditures of trusts and combines on
economic administration).
In 1954 about three-quarters of industrial production costs in the U.S.S.R. consisted of
material outlays (on raw materials, fuel, power, depreciation, etc.), and one-quarter consisted of
wages.

The entire productive work of an enterprise, together with its activity in

connection with obtaining supplies of material and disposing of the finished
product, finds generalised expression in its costs of production.
The lower the costs (providing that the output plan has been fulfilled and
that output is of the appropriate quality), the higher the level of the economic
work of an enterprise. Reduction in the costs of production, transport and
building is the most generalised index there is of the quality of the work of the
national economy. Costs depend on the degree of productivity of labour and the
expenditure on labour-power, on the level of utilisation of equipment, on economy
and the observation of standards in the use of raw material, fuel and other
materials, and on the expenses of circulation, especially transport. (L.M.
Kaganovich, Speech at the First Session of the Supreme Soviet of the U.S.S.R.,
24 April 1954.) The State systematically sets planned targets for reducing output
costs, on the basis of raising the productivity of labour, with progressive
standards of labour outlays and of the utilisation of the fixed and circulating
means of production, acceleration of the turn-over of resources, and reduction of
expenditure on the upkeep of the administrative apparatus.
Systematic reduction of the costs of production of socialist enterprises
means constant economy of both living and past labour. It reflects the demands of
the law of steady raising of the productivity of social labour. Reduction of costs is
one of the central tasks of socialist management. Every percentage by which the
costs of production, transport and building are reduced gives socialist society
milliards of roubles which are used to extend production and improve the peoples
welfare. Active participation by the masses in the struggle for economy in the
national economy is of very great importance for the reduction of costs.

The costs of production are being systematically reduced in the State industries of the
U.S.S.R. Thus, the cost of production was reduced as compared with the previous year, taking into
account the reduction in prices of raw and other materials and fuel and the costs of electrical and
thermal power and freight charges: in 1951 by 7 per cent, in 1952 by more than 8 per cent, in
1953 by more than 5 per cent and in 1954 by nearly 4 per cent.
The national economy of the U.S.S.R. contains large unused reserves for the reduction of
production expenses. A considerable section of our industrial enterprises do not fulfil their planned
tasks for reducing the cost of production, do not effect the necessary economies of raw and other
materials, fuel and power, do not carry on a resolute fight against unproductive expenses. One of
the main causes, why plans for the reduction of costs are not fulfilled is the existence of extensive
losses due to spoilage in production. A serious improvement in the qualitative indices of production
in all enterprises is one of the conditions necessary for the further advance of Soviet industry.

The Net Income of a State Enterprise. The Centralised Net

Income of the State

The difference between the value and cost of production constitutes the net
income of society, in which is expressed the product for society created by the
labour of workers in socialist production. Thus, whereas the cost of production is
one of the main elements of the value of this production, the second element of
this value is the net income. In the State sector the whole of the net income is
public property. It is expressed in money, and takes two basic formsthe net
income of the State enterprise and the centralised net income of the State. Both
forms of net income are created in the sphere of production, in socialist
enterprises. They differ in the methods by which they are accumulated and used.
The net income of a State enterprise is that part of the net income created
by labour for society, which is accumulated in the enterprise concerned and is
used to a considerable extent for the enterprises own needs. The centralised net
income of the State is that part of the net income of society which is concentrated
in State hands to be used for public needs.
These two forms of net income are made necessary by the system of
economic accounting, on the one hand, and, on the other hand, by the fact that
socialist economy needs to centralise a considerable part of its net income. This
enables the Socialist State to make sure that the workers have an interest both in
increasing the profitability of every individual enterprise and in satisfying the
needs of society as a whole.
In everyday economic practice the net income of State enterprises is called
profit. But in socialist society the conditions in which the economic category
called profit can exist have completely vanished, for profit expresses the
economic relations of capitalist exploitation. In view of this the net income of a
State enterprise is not in essence profit. The size of the net income of an
enterprise depends on the extent to which production, sales and cost-reduction
plans are fulfilled. Costs and net income are closely connected: a reduction in
production costs leads to a rise in the net income of an enterprise.
The net income of enterprises is used by the State in a planned way. Part of
it is allocated to the extension of production in the enterprise or branch concerned
(by capital investments and the increase of its own circulating resources), and
another part forms the enterprises fund, for improving the cultural and living
conditions of the workers and improving production. The part of the net income
remaining after these needs have been met is transferred to the State in the form
of what are called deductions from profits.

An enterprise fund is formed in all State industrial enterprises which operate under the
system of economic accounting and have an independent balance. The condition for the formation
of this fund is the fulfilment or overfulfilment by an enterprise of the State plan for the output of
marketable products as a whole and in respect of basic items, and also the plan for reduction of
costs of production and for accumulation of net income (profit). The source from which the fund is
formed is the net income (profit) of the enterprise; in enterprises where the plan does not provide
for the making of a profit, the source is economies achieved by reducing the costs of production.
When the plan for the accumulation of net income and the tasks assigned for reducing costs of
production are overfulfilled, from 20 to 50 per cent of the amount of net income (profit) above the
planned figure, or of the amount beyond the planned figure that has been saved on costs of
production, is allocated to the enterprise fund. Thus, the formation of an enterprise fund depends
on the quality of the economic activity carried on by the enterprise. In this way the fund plays a
great part in providing a material stimulus for the fulfilment or overfulfilment of the plan, the
strengthening of economic accounting and the raising of the profitability of production.
Half of the funds in the enterprise fund are spent on introducing new technique and
improving existing equipment, extending production, and on building and repairs to houses
belonging to the enterprise, over and above the plans provision for capital investments. The other
half of the funds go on improving the cultural and living amenities of the workers of the enterprise
(extending subsidiary economies, institutions for children, equipment of holiday homes and
sanatoria, canteens, clubs, physical culture facilities), and also on the award of individual bonuses
to workers, office-workers, and engineering and technical personnel, providing travel-warrants to
holiday homes and sanatoria and making grants-in-aid to employees of the enterprise.
The net income of enterprises is continuously rising as a result of the continuous and rapid
increase in production and labour productivity, and of the reduction in costs. Total net income
(profits) of enterprises and economic organisations of the U.S.S.R. was 6.6 milliard roubles in
1932, 31.8 milliards in 1940, 89.8 milliards in 1953, and according to the plan was to be 143.3
milliards in 1955.

The size of the net income of a State enterprise directly depends to a great
extent on the work of the enterprise itselfon the extent to which it reduces its
costs per unit of output and fulfils its. production and sales plan. A rise in net
income enables the amount transferred to the enterprise fund to be increased,
and ensures an increase in the circulating resources and capital investments. Thus
the net income of a State enterprise is indissolubly connected with economic
accounting, and provides a direct incentive to improve the quality of the work of
the enterprise.
The Socialist State plans the amount of the net income of enterprises, and,
thereby determines the standard (or level) of profitability for particular kinds of
production and enterprises. The profitability standard of an enterprise is the ratio
of its total net income to the full costs of output sold, expressed as a percentage.
The profitability standard of a socialist enterprise is different in principle
from the rate of profit under capitalism, which is connected with relations of
exploitation. In socialist economy the law of the average rate of profit and the
price of production does not operate. The profitability standard is not the result of
an. equalising of the net incomes of enterprises; it is fixed by the State on the
basis of the specific conditions in which the enterprise works, and takes into
account both the interest of the latter in securing net income and the need to
enforce rouble control of the work of the enterprise. In doing this the State takes
into account the need to lay down a profitability, standard for the enterprise which
does not allow the latter to accumulate excessive cash resources, and
continuously encourages it to reinforce economic accounting and reduce
production costs. If the standard of profitability is too generous the enterprise can
obtain a considerable net income without waging a struggle to reduce costs of
production.
The centralised net income of the State comes into the State Budget in the
form of various allocations from the incomes of socialist enterprises. The main
part of the centralised net income of the State comes into the Budget in the form
of allocations made from the incomes of enterprises according to fixed rates;
these allocations enter into the prices of industrial products in amounts fixed
beforehand. Allocations according to fixed rates are in practice called turnover
tax. They are not at the disposal of the enterprises and immediately after the
products are sold they pass into the State Budget. The amount of this section of
the centralised net income (turnover tax) which falls on a unit of production,
e.g., a yard of cloth or a pair of shoes, does not directly depend on the
enterprises fulfilment of the plan regarding costs, However, the amount of the net
income (profit) of the enterprise does depend directly on the extent to which the
cost of a unit of production, e.g., a metre of cloth or a pair of shoes, has been
reduced. The lower the cost of production, the higher the net income of the
enterprise.
Even though part of the centralised net income of the State passes into the
State Budget at fixed rates and is called turn-over tax, it does not have the
nature of a tax, or of deduction from the incomes of the working, people in any
form. Thus, the level of wages is decided by the Socialist State on the basis of the
need systematically to increase the real level of wagesand this takes into
account the prices of consumer goods, including the so-called turnover tax.
In the process of distribution, part of the net income of State enterprises is
also transferred to the centralised net income of the State in the form of
deductions from profits. Furthermore, into the centralised net income of the State
pass charges for social insurance needs calculated on the basis of the total wages
bill, which for practical purposes are treated as an element of costs but in essence
form part of net income, etc. In addition, part of the net income of co-operative
and collective farm enterprise is transferred to the centralised net income of the
State.
 Price in State Industrial Enterprises

Costs, the net income of the enterprise, and part of the centralised net
income of the State in the form of the so-called turnover tax, all form part of the
price of industrial output.
In the State industry of the U.S.S.R. there are these two basic forms of
price: the wholesale price at the enterprise and the wholesale price of industry.
The wholesale price at the enterprise is equal to the planned cost plus the net
income of the enterprise (profit).
The wholesale price of industry includes the wholesale price at the
enterprise and that part of the centralised net income of the State which is
allocated to the Budget at fixed rates, the turnover tax.
The net income of society is created in all branches of productionin
industry, in agriculture, in transport, etc. However, part of the centralised net
income of the State, allocated at fixed rates, passes into the Budget through the
price mechanism primarily from those branches of the economy which produce
consumer goods. Prices for the output of branches which produce means of
production, as a rule, are fixed below the value, since they do not contain parts of
the net income created in these branches. Thereby this part of the net income
passes from heavy industry into light industry and the food-producing industry
and is realised in the prices of consumer goods. This ensures a relatively low level
of prices for the means of production which are used in industry, agriculture and
building, and reduces their cost of production accordingly.
The wholesale price at the enterprise ensures for the enterprise
compensation for its planned expenditure and the receipt of net income. Infixing
wholesale prices at the enterprise at levels which ensure the profitability of
enterprises, the State takes into account the operation of the law of value.
Wholesale prices at the enterprise playa big part in the system of economic
accounting and rouble control of costs. The requirements of economic accounting
demand a level of wholesale prices such as will stimulate improvement in the
quality of an enterprises work, encourage it to economise resources and reduce
costs. Wholesale prices which do not guarantee that when the enterprise fulfils
the plan as regards costs it will make a profit or even recover its expenses lead to
a weakening in economic accounting and in the enterprises incentive to raise the
quality of its economic activity. On the other hand, high wholesale prices which
guarantee profitability even when the enterprise uses backward methods of work
do not stimulate the application of progressive production standards.
The continuous growth and improvement of socialist production provides
the basis for reduction of wholesale prices. The Socialist State consistently carries
out a policy of systematic reduction of costs of industrial production and reduction
of prices of industrial commodities. In turn, the reduction of prices serves as a
factor in the reduction of costs. So as to have net income when prices are
reduced an enterprise must restrict in every possible way its expenditure per unit
of production.
 By reducing wholesale prices, the State encourages the managements of
enterprises to reduce expenditures so as to keep production profitable, to improve
the organisation of labour, and to find and utilise hidden reserves in the economy.

In the period from 1950 to 1955, on the basis of the growth of production and reduction in
the costs of production, a threefold reduction of wholesale prices in industry was carried out, as a
result of which wholesale prices in heavy industry in the middle of 1955 were below the level of
wholesale prices prevailing at the end of 1948, before the system of subsidies to cover the losses
of heavy industry was abolished and a temporary increase in wholesale prices introduced for the
products of certain branches of heavy industry.

The systematic reduction of wholesale prices strengthens economic

accounting and provides the basis for reducing retail prices.

BRIEF CONCLUSIONS
(1) Socialism makes widely possible economies in all production resources,
and these economies lead in the long run to a continuous saving in labour-time;
i.e., in living and congealed labour. Economy of labour, both living and congealed,
in socialist enterprises, is effected by means of economic accounting. Economic
accounting is the method of planned management of the economy of socialist
enterprises. Based on the operation of the law of value, it involves the
measurement of production outlays and results of economic activity in money
terms, the meeting of expenditures out of the income received by enterprises
themselves, economy of resources, and ensuring production at a profit. Economic
accounting presupposes that the enterprise has independence in economic
operation, is responsible for using the resources placed at its disposal
economically, and is materially interested in improving the results of its work. It is
aimed at the fulfilment and overfulfilment of plans in respect of both quantitative
and qualitative indices.
(2) Production funds of State socialist enterprises are divided into fixed and
circulating. The circulating funds, and the funds of circulation, together make up
the circulating resources of an enterprise. The socialist system of economy
ensures the fullest possible and most appropriate use of fixed funds and
circulating resources.
(3) Production costs are that part of social production outlays, expressed in
money form, which comprise outlay on used-up means of production and wages.
They are a most important index of the quality of the work of an enterprise. The
systematic reduction of costs and prices is one of the basic principles of socialist
economic management.
(4) The product of labour for society constitutes the net income of socialist
society. Net income in the State production sector is received in two basic forms
as the net income of State enterprises and as the centralised net income of the
State. The net income of State enterprises is that part of the net income created
by labour for society which is accumulated in a particular enterprise, and is used
to a considerable extent to meet its own needs. The centralised net income of the
State is that part of the net income of society which is concentrated in the hands
of the State to be used for general public purposes. Such a division of the net
income is caused by the necessity, on the one hand, of ensuring that economic
accounting should work properly, and, on the other hand, of making centralised
use of a considerable part of the net income of society for general State
requirements.
(5) In the State industry of the U.S.S.R. there are two main forms of price:
wholesale price at the enterprise and wholesale price of industry. The wholesale
price at the enterprise is equivalent to the planned cost plus the net income of the
enterprise. The wholesale price of industry includes the wholesale price at the
enterprise and part of the centralised net income of the State, allocated to the
budget at fixed rates.
 CHAPTER XXXV

THE SOCIALIST SYSTEM OF AGRICULTURE

The Place and Role of Socialist Agriculture in the National

Economy

The socialist system of agriculture is based on State (public) and co-

operative collective farm ownership of the means of production. The system
includes collective farms, machine and tractor stations and State farms.
Socialist agriculture plays an important part in the securing of the maximum
satisfaction of the constantly growing material and cultural needs of the whole of
society. It is the food base, supplying the population with foodstuffs, and the raw
materials base for the light and food industries, which produce objects of mass
consumption.

Socialist society is a producers and consumers association of those

who work in industry and agriculture. If, in this association, industry is not
linked up with agriculture, which provides raw materials and food and
absorbs the products of industry, if industry and agriculture do not thus
constitute a single, national-economic whole, there will be no socialism
whatever. (Stalin, Questions and Answers, Works, English edition, Vol.
VII, p. 203.)

Industry is the leading element in relation to agriculture. Large-scale highly

mechanised agriculture depends to a vast extent on industry, which produces
tractors, combine harvesters and other agricultural machines, their spare parts,
fuel, mineral fertilisers, chemicals for pest control, and so on. A steady rise in
socialist agriculture can be secured only on the basis of a preferentially rapid
growth in the output of means of production supplied for agriculture by socialist
industry.
At the same time the development of industry and other branches of the
national economy depend on an uninterrupted and rapid raising of agricultural
production. The increasing of the peoples well-being and the growth of the town
population, demand increased output of grain, meat, milk, green vegetables and
other agricultural produce. The expansion of the output of manufactured goods is
only possible on the basis of a growing output of agricultural raw materials for the
various branches of the light and food industries: cotton, flax, wool, sugar-beet,
oil crops, and so on.
The socialist system of agriculture creates the possibility of a systematic
growth in productivity of agricultural production and an increase in its marketed
surplus. The productivity of labour in socialist agriculture in the U.S.S.R. in 1954
was three times as great as the productivity of labour in pre-revolutionary
agriculture, which testifies to the great advantages of collective and State farm
production.

The marketed output production of agriculture increased, between 1926-7 and 1952-3, in
the case of grain from 10.3 million tons to 40.4 millions, of potatoes from 3 million tons to 12.5
millions, of meat (live weight) from 2.4 million tons to 5 millions, of milk from 4.3 million tons to
13.2 millions. Great successes have been achieved in the production of cotton, sugar-beet and
some other industrial crops.

But the level of agricultural production achieved in the U.S.S.R. does not
correspond to the high technical equipment of agriculture and to the possibilities
latent in the socialist system of agriculture and does not yet satisfy the constantly
growing requirements of the population as regards foodstuffs, and those of light
industry as regards agricultural raw materials. In order to fulfil all the
requirements of the population for various foodstuffs and to develop widely the
different branches of the light and food-producing industries, it is essential not
only rapidly to increase agricultural production as a whole, but also to improve its
structure (increasing the relative importance of livestock breeding, of valuable
crops, etc.).

This demands above all an increase in grain production. Grain farming is the
basis of the whole of agricultural production. In order to solve the problem of
livestock breeding as soon as possible, it is essential to provide all stock with
grain fodders: maize, barley and oats. The expansion of cotton, flax, sugar-beet
and sunflower production, as well as that of other industrial crops, means that
bread must be provided for those engaged in raising these crops. Thus the
development of all branches of agriculture depends on an increase in grain
output.
The all-round satisfaction of the populations requirements in foodstuffs and
the improvement of the structure of its diet also demand further development of
stockbreeding and of all other branches of agriculture: potato and other vegetable
growing, fruit growing, viticulture, etc. Socialist agriculture has great and still far
from exhausted possibilities of ensuring full supplies of agricultural produce for
the population and of raw material for industry.
The great successes achieved in the development of heavy industry allowed
the Communist Party and the Soviet State to set forth in 1953-4 a programme for
a steep rise in all branches of agricultural production and to undertake the
practical realisation of this programme. The January, 1955, Plenum of the Central
Committee of the C.P.S.U. took the decision to raise the gross yield of grain
during the next five or six years to ten milliard poods a year and to double and
more than double the output of the main products of animal husbandry. The
sources from which the gross yield of grain are to be increased are: raising the
crop capacity of all sown areas, reduction in losses in harvesting, reclamation of
virgin and fallow land. The task of sharply increasing the production of grain is
exceptionally important for the carrying through of the great plans of communist
construction. The struggle to extend grain production is a struggle to strengthen
the economic might of our homeland and to achieve a further improvement in the
well-being of the people.
Raising the gross yield of grain to ten milliard poods a year will enable all
demands for grain to be fully met, more substantial reserves to be formed, trade
with foreign countries to be extended, and also more than four milliard poods of
grain to be set aside for stockbreedingparticularly maize, but also a
considerable quantity of bran, oil-cake and other types of fodder. Stockbreeding
will be provided with a stable fodder base and will become highly productive, with
a great deal of its product available for marketing, and will ensure the supply to
the population of the necessary quantity of animal products.
The experience of the advanced collective farms, M.T.S. and State farms
shows that this task can be accomplished in a shorter period than was planned.
One of the most important conditions of an increase in all branches of
agricultural production is the most complete and all round utilisation of the land
as the main means of production in agriculture. Public ownership of the land is an
important. factor in reducing the costs of agricultural produce, in steadily raising
the material position of the Soviet peasantry.

In pre-revolutionary Russia the poor and middle peasants had about 330 million acres of
agricultural land. As a result of the October Socialist Revolution and the victory of the collective
farm system the collective farm peasantry in 1937 already had for their use more than 910 million
acres of agricultural land, i.e., almost three times as much. At the present time, including the
collective farms of the western regions of the Ukrainian S.S.R. and the Belorussian S.S.K, the
western districts of the Moldavian S.S.R., and the Baltic Soviet Republics, the collective farm
peasantry has for its use 980 million acres of agricultural land, and in all, including forests and
other lands not yet used for agriculture, 1,430 million acres of land are secured to the collective
farms for their perpetual use. Apart from this, the collective farms have, for long-term use without
payment, 445 million acres of the State land fund and the State forest fund, of which 163 million
acres are agricultural land.
The State farms have about 170 million acres of agricultural land; subsidiary farms
belonging to factories and institutions, and other land users, have more than 46 million acres.

The collective and State farms have huge reserves of unutilised, fertile,
virgin and long-fallow lands. The acquisition of these lands offers the possibility of
considerably increasing in a very short period the output of agricultural produce.
The economic necessity for the nation of increasing the production of grain
and other agricultural products has required the carrying out of large-scale public
works for the fullest development of the land wealth of the country. In keeping
with the decisions of the February-March, 1954, Plenum of the Central Committee
of the Communist Party of the Soviet Union on the further expansion of grain
production and on the development of virgin and long-fallow lands, and with
subsequent decisions of the Communist Party and the Soviet State, a vast
programme has been adopted which provides for the development of virgin and
long-fallow lands, mainly in the countrys eastern districts, so that the sown area
of grain and other agricultural crops on newly-developed lands should reach 69-
74 million acres in 1956. The successful fulfilment of this national task made
possible even in 1954 and the first half of 1955 the opening-up of 65 million acres
of highly fertile virgin and long-fallow lands in collective and State farms.

The large tracts of land secured to each collective and State farm allow the
most productive use of tractors, combines and other complex agricultural
machines, the introduction of correct crop rotations, work on land improvement,
the construction of irrigation and drainage canals, afforestation, etc. The land,
Marx pointed out, constantly improves if it is correctly treated. The socialist
system affords every possibility of creating a rational system of agriculture which
ensures a regular increase in soil fertility and the highest productivity of
agricultural output.
A rational system of agriculture presupposes its intensification.
Intensification of agriculture means the additional investment of means of
production in a given land area and the improvement of agriculture methods, so
as to obtain the greatest quantity of produce from each acre under cultivation by
reducing the expenditure of labour and resources per unit of production.
Intensification presupposes the application of artificial and organic fertilisers, the
raising of highly productive breeds of cattle, the application of the latest
achievements of agronomic and veterinary science, etc. This is the main line of
development for socialist agriculture.

The Machine and Tractor Stations-The Industrial Base of

Collective Farm Production

The collective farms are served by State-owned machine and tractor

stations, in which are concentrated the most important implements of agricultural
production.
The concentration in State hands of the most important means of
agricultural production is a great advantage of the collective farm system.
Agricultural technique is ceaselessly being perfected. The constant progress of
socialist agriculture is unthinkable without this. The creation of numerous
machines which are being more and more improved demands large-scale capital
investments, which pay for themselves after a number of years. The Soviet State
invests in agriculture considerable and ever-growing resources which would be
beyond the means of even the largest individual agricultural enterprises.
 In 1953 alone expenditure on the development of agriculture provided by the State Budget,
and also out of other public funds, amounted to 52 milliard roubles. In 1954 this expenditure
increased to 74.4 milliard roubles. In the Budget allocations; expenditure on further strengthening
the machine and tractor stations amounted in 1954 to more than 32 milliard roubles.

Machine and tractor stations are the industrial material and technical base
of collective farm production, and represent a decisive force in the development
of the collective farms. The production link between industry and agriculture is
realised through the M.T.S. The socialist production relations between the working
class and the collective farm peasantry are expressed in the mutual relations
between the machine and tractor stations and the collective farms.
Thanks to the M. T.S., the development of the collective farms takes place
on the basis of the highest technique. A high level of mechanisation of collective
farm production is the basis on which labour productivity in collective farms is
raised. Mechanisation has to an enormous extent lightened the labour of collective
farmers and made possible the carrying out of agricultural work in periods which
correspond with the rules of agronomic science and the application of the
achievements of advanced agricultural technique. The wide use of M.T.S.
machines in collective farm production greatly economises labour expenditure in
agricultural production.

By the beginning of 1954 the machine and tractor stations had at their disposal more than
three-quarters of the total capacity of mechanical prime movers (including electric) in M.T.S. and
collective farms. In 1954 more than 80 per cent of the basic field work in collective farms,
including almost all the ploughing, was carried out by the M.T.S. The annual labour of 23 million
workers less than would have been needed to carry out the same work in conditions of individual
peasant holdings was expended on work carried out in 1953 by the M.T.S. with the help of tractors
and combines.

The principal task of the M.T.S.s is to secure the greatest possible

increase in the yields of all crops in the collective farms, to help the latter to
increase their socially-owned herd and its productivity and to raise the total
output and marketable surplus of crops and livestock in the collective farms
they serve. (Resolution of the September, 1953, Plenum of the Central
Committee of the C.P.S.U. The C.P.S.U. in Resolutions and Decisions of its
Congresses, Conferences and Central Committee meetings, 7th Russian
edition, Pt. II, p. 1182.)

The complex mechanisation of all branches of collective farm productionin

grain farming, in the raising of technical and fodder crops, in vegetable growing
and also in the arduous jobs in the livestock departments of collective farmsis
the most important condition for solving this problem. In the M.T.S. and the
specialised stations regular cadres of skilled mechanics have been formedtractor
drivers, tractor team leaders, combine operators and operators of other complex
agricultural machines. This makes possible the fullest and most productive use of
the wealth of complex agricultural machinery available. The M.T.S., as large-scale
industrial-type State enterprises serving the collective farms, have the
responsibility of acting as guides to a high level of agriculture and organisers of
collective farm production. Through the M.T.S. the Soviet State exercises its
function as economic guide and organiser in the strengthening of the collective
farms. The M.T.S. helps them in the planning of their socialised sector, in the
correct organisation of labour, in the training of personnel, in the whole economic,
political and cultural life of the Soviet countryside.

Until 1953 the rich and complex machinery in the M.T.S. was entrusted to seasonal
collective farm workers, who were allocated by the farms to work in the M.T.S. just for the period
of field work. In accordance with the decisions of the September, 1953, Plenum of the Central
Committee of the Communist Party of the Soviet Union, permanent cadres of mechanics were
created in the M.T.S. The total number of permanent workers on the strength of the M.T.S. in 1954
was about two million, which included one million tractor drivers, 200,000 tractor team leaders
and their assistants, and 240,000 combine operators.

The M.T.S. serve the collective farms on the basis of agreements concluded
with them which have the force of law for both sides. The obtaining by the
collective farms, served by a given M.T.S., of the greatest quantity of produce and
money income per hundred acres of agricultural land with the least possible
expenditure of labour and resources per unit of production is the basic economic
index of M.T.S. activity. The M.T.S. are responsible for carrying out State
deliveries of agricultural produce from the collective farms.
In accordance with the agreements concluded by the M.T.S. with the
collective farms, the latter pay for the work done for them by the former in kind
(in agricultural produce), for certain work, however, in money. The payment in
kind for M. T.S. work is that part of the collective farms gross production which
reimburses the outlay of the State M.T.S. on the production of collective farm
output. The payment in kind embodies in itself past labour, consisting of the
expended means of production of the M.T.S., and also the newly-expended labour
of the M.T.S. workers, which consists of labour for themselves and labour for
society. The rates of payment in kind for M. T.S. work are fixed, but differentiated
according to the zones of the country and their economic and natural conditions.
For overfulfilment of planned yields of agricultural crops, the M. T.S. receive from
the collective farms a definite part of the harvest gathered above plan.

Selling the agricultural produce coming from the collective farms as payment in kind, the
State obtains money which is spent on replacing used-up means of production of the M.T.S. and
on the wages of M.T.S. workers. Through the sale of agricultural produce supplied as payment in
kind the State also obtains a net income which is used to expand existing M.T.S., to construct new
M.T.S. and for other public needs.
The establishment of fixed rates of payment in kind is an important condition for the M.T.S.
advancing from being financed out of the Budget to economic accounting so that each M.T.S.
should spend its resources in keeping with the income it has received. The introduction of
economic accounting into the M.T.S. and observance by them of a regime of economy are of great
importance for the reduction of the cost per centner of agricultural produce received as payment in
kind, fuller and more efficient use of machinery, high-quality and timely repair of machines and
careful maintenance of the latter.

The principle of the material interest of workers in the results of their labour
is applied in the M.T.S. in particular forms, different from the forms of payment of
labour in other State enterprises and in the collective farms. Permanent and
seasonal workers in the tractor teams receive payment for their labour in money
and in kind, on the basis of piece-rates. Moreover, during the period of field work,
payment is reckoned according to the output standards they have kept up and on
the basis of prices calculated in work-days. The State, through the M.T.S., pays
the permanent and seasonal tractor-team workers for each work-day they
perform a guaranteed minimum in kind (grain), the size of the minimum
depending on the fulfilment of the planned tasks as regards yields of agricultural
crops in the collective farms served.

In addition to this, tractor-team workers receive from the collective farm in which they are
working, for the work-days they have earned the difference between the actual payment in grain
per work-earned day and the guaranteed minimum: this applies likewise to all other agricultural
produce, on the same footing as the collective farmers. During the period of work away from the
fields (in repair shops, at work on the mechanical side of the livestock departments, on M.T.S.
buildings) the M.T.S. pay their workers a money wage on the basis of piece rates.

The system of payment of M.T.S. workers gives them a material interest in

the better use of agricultural technique and in raising collective farm production.

The Socialised Sector of the Collective Farms. Planning of

Collective Farm Production

Freed from the necessity of spending large sums on the purchase and rent
of land, as well as on the purchase of the most important implements of
production, the collective farms are able to use their growing income for the
development of their socialised sector. The socialised sector of the collective farm
is organised on State land and run with the help of modern machinery,
concentrated in the M.T.S. and constituting public property. The means of
production belonging to the artel, and the output of the collective farms,
constitute co-operative collective farm property.
Since the agricultural artel is an enterprise of co-operative type, the
socialised means of production are part of the indivisible fund of the collective
farm. The indivisible fund of the collective farm consists of collective farm
implements of labour, work and store cattle, buildings, means of transport,
subsidiary enterprises, long-term plantations, irrigation works, materials and
money allocated for the development of the socialised sector. Cultural buildings
and amenities (collective farm clubs, reading-rooms, kindergartens, etc.) also
belong to the indivisible fund. The constant growth of indivisible funds is the most
important condition for the development of the socialised sector of the collective
farms and the increase of collective farm wealth.

The capital investments of the collective farms are used for the construction of farm
buildings, livestock accommodation, irrigation and drainage canals, ponds, clearing the land of
brushwood, the building of collective farm power stations and other structures. Capital
investments of collective farms in their socialised sector, from their own means and with their own
labour, excluding expenditure on expanding the herd, amounted to about 40 milliard roubles in
1946-50, and 52 milliard in 1951-4.
Apart from this, the collective farms spent more than 11 milliard roubles in 1946-50 and 6
milliard in 1951-4 on increasing the number of socially-owned cattle and poultry.

The collective farms, as large-scale socialist enterprises, cannot exist and

develop from hand to mouth; they require planned guidance of their economy.
The planned development of the socialised sector of the collective farms
along a path of steady advance is the basis for the growth of the material and
cultural standard of life of the collective farmers. Forming as they do part of the
system of socialist economy, the collective farms must by all-round development
of their socialist sector increase to an ever-growing extent, their production for
the market, in quantities adequate to meet the demand of the towns and
industrial centres, foreign trade and the formation of reserves. Long-term
planning is carried out in the collective farms, aimed at contributing. to the
solution of the national economic tasks by a sharp rise in agricultural production
in the shortest possible time, and annual plans are drawn up accordingly.
The point of departure in State planning of collective farm production is the
planning of production of surplus agricultural produce which passes out of the
collective farms control into the disposal of the State.
The surplus (marketable) production of the collective farms grows with the
growth of the socialised sector. The planned guidance of agriculture envisages the
need for more productive use of the land. The most important economic index of
the results of the collective farms economic activity is the obtaining of the
maximum amount of gross product of agriculture and stockraising per hundred
acres of agricultural landarable, meadow, pastureand per work-day worked.
The State plan for the development of agriculture lays down the amount of
produce of arable and livestock farming to be rendered to the State in the form of
compulsory deliveries, payment in kind for the work of the M.T.S., contracting and
purchases. It lays down for the M.T.S. the amount of tractor work to be done on
the collective farms. The collective farms must plan, with the participation of the
M.T.S., a level of agricultural production which will completely ensure the
fulfilment of the planned tasks of delivery and sale of produce, both arable and
pastoral, to the State, as well as covering the needs of the socialised sector of the
collective farms and those of the collective farmers. Thus, the collective farms
determine according to their own judgment the size of area to be sown to
particular crops, the amount of the yield to be aimed at, the head of cattle by
species and the productivity of stockbreeding, and the system of agricultural and
veterinary measures to be adopted. The plans for sowing the various crops and
the plans for stockbreeding are discussed and decided at general meetings of
collective farmers.
This procedure in planning helps to enhance the initiative of the collective
farmers in getting the maximum amount of produce from each acre of land in the
collective farms charge. It also strengthens the responsibility of the collective
farms and the M.T.S. in relation to the delivery of agricultural produce in the
necessary quantity to the State.
The planning procedure described also has the function of increasing the
economic initiative and incentive of the collective farmers and M.T.S. workers in
relation to the development of the non-specialised economy of the. collective
farms, taking into account the natural and economic conditions of the various
parts of the country.
The carrying on of a non-specialised economy is one of the great
advantages of socialist agricultural enterprises. A non-specialised economy
permits a rational combination of various branches of agricultural production,
especially arable and livestock farming, and the obtaining of the maximum
amount of produce from each acre. In collective farms which correctly combine
(taking into account the natural and technical conditions that exist in the various
parts of the country) the production of grain, industrial crops, fodder and
vegetables, and stockbreeding, the labour force is employed more fully and
evenly through the whole year, higher indices of labour productivity are obtained,
and the economy pays better. Financial resources become available to non-
specialised farms more regularly during the course of the year, which enables
them to find in good time the money for economic measures which they wish to
put into effect.
A non-specialised farm does not contradict but presupposes specialised
regions and districts of the country and particular farms specialising in branches,
crops and kinds of stock. The correct conduct of a socialist agricultural enterprise
excludes both the universalism of small peasant economy, in which a variety of
crops are cultivated, mostly for the peasants own consumption, and the one-
sided development of capitalist farms, which usually specialise in one crop
(monoculture).
The specialisation of socialist agriculture means, first, fuller utilisation of the
specific natural and economic conditions of each region and district of the country
for planned production of a particular product needed by society (e.g., cotton in
the Central Asian Republics of the U.S.S.R.); second, correct combination of the
basic and supplementary branches of the economy, especially arable farming and
stockraising, grain, technical and vegetable crops; and, third, the production of
such agricultural crops and breeding of such types of stock, in accordance with
local conditions, as will ensure the maximum amount of high-quality production
with the least expenditure of labour and resources per unit.
The planned distribution of agricultural production throughout the country
must also conform to this requirement. Any stereotyped distribution of crops or
kinds of stock or the application of uniform crop rotations and agrotechnical
methods, regardless of the special features of the natural and economic
conditions of a district, is contradictory to the principles of rational conduct of
planned socialist economy.

Socialist Forms of Organisation of Labour in Collective Farms.

 The Work-day

The socialised sector of the agricultural artel is conducted on the basis of

the collective labour of the collective farmers.
The permanent production team, formed by the collective farm
management to work in one branch or another of the socialised sector, is the
main form of labour organisation in collective farms.

Production teams exist for field crops, stockbreeding, fodder storage, vegetable growing,
fruit farming, building and other purposes.
The field team is allotted, in the fields of the collective farms rotation, tracts of land of a
size to ensure the highly productive use of tractors, combine harvesters and other M.T.S. machines
in carrying out all agricultural work. Draught animals, the necessary agricultural equipment and
farm buildings are provided for each field team. Links are formed within the field team for the
more productive use of manual labour in cultivating crops which require more arduous effort. Links
are directly subordinated to the field teams leader. The June, 1954, Plenum of the Central
Committee of the Communist Party of the Soviet Union recognised that it was necessary, while
strengthening the production teams in the collective farms, at the same time to encourage the
organisation of links for specially cultivated and industrial crops, and to help them in every way to
obtain large harvests on the fields for which they were responsible.
Livestock teams are organised for work in the collective farm livestock departments.
Usually one department with the stock buildings and means of production necessary for its upkeep
is provided for each livestock brigade.
Ensuring the smooth co-operation of M.T.S. and collective farms is an important condition
for the most effective use of the complex M.T.S. machinery. This is achieved by linking the work of
the M.T.S. tractor team with that of the collective farms permanent production teams. Each M.T.S.
tractor team serves one particular collective farm team or several teams, for a number of years.

In agreement with the character of co-operative collective farm property,

the requirements of the economic law of distribution according to work done is
carried out in collective farms by means of the work-day. The work-day is a
measure of the expenditure of the labour of collective farmers in the collective
farms socialised sector, and at the same time determines the share of each
collective farmer in the collective farms income. The expenditure of the labour of
collective farmers in the socialised sector is reckoned in work-days; the collective
farm distributes among the collective farmers that part of its income which goes
to personal consumption according to the work-days earned.

A standard of output per working day, achievable by a collective farmer working

conscientiously, and taking into account the condition of the draught-animals, machines, and the
quality of the soil, is fixed for each job on the collective farms. The rate in work-days, depending
on the skill required of the worker, the complexity, arduousness and importance of the particular
job for the artel, is determined in keeping with the output standard. The fulfilment of the daily
standard output on comparatively simple field work is rated at one work-day. All other forms of
labour in the collective farm are assessed below or above this. In the course of a working day a
collective farmer can be credited with one work-day, half a work-day or several work-days,
according to the form of labour involved and the degree of fulfilment or overfulfilment of the
standard output. Consequently, a work-day is not the same as a working day. The collective farms
plan their work-day expenditure by separate branches and agricultural crops. They maintain strict
supervision of the correct crediting of work-days according to the work done by each team, link
and individual collective farmer.
 Thus the work-day takes account of both the quantity and the quality of the
collective farmers labour in various jobs, and this makes possible the correlation
of various types of work in the collective farm. Skilled labour is rated higher in
work-days than unskilled, more intensive labour higher than less intensive. The
work-day also makes possible the correlation of labour of different productivity in
similar jobs. A collective farmer over-fulfilling the output standard is allotted
correspondingly more work-days. In the work-day the labour of an individual
collective farmer is expressed as part of the total direct social labour in the
collective farm. In this way the personal labour of each collective farmer in
collective farm production receives its social evaluation. The work-day reflects
socialist production relations between the collective farmers within their particular
collective farm, and is an important economic instrument for organising collective
farm production.
In so far as the existence of two basic forms of socialist production leads to
the existence of commodity production and circulation, the collective farms cannot
confine themselves to reckoning up the expenditure on collective farm production
in terms of work-days. They have their finances: they calculate collective farm
output and income in money terms, and accumulate money; payment of work-
days in the collective farms takes place not only in kind, but also in cash.
In the work-day are expressed the principles of equality in socialist society:
the freeing of all workers from exploitation, the obligation of everyone to work,
and the right of everyone to be remunerated for his labour according to its
quantity and quality. The work-day secures equal pay for the labour of men and
women. The collective farm system has put an end to the age-old economic
inequality of the peasant woman. Only in the collective farm has the peasant
woman acquired the opportunity of standing on an equal footing with the man.
Thus the work-day is a new economic category, born of the collective farm
system.

The Output of Collective Farm Production. Collective Farm

Income

The output produced in the socialised sector of the artel constitutes group,
co-operative collective farm property. At the same time, not only the collective
farms, but also the M.T.S., which carry out most important jobs in the collective
farm, participate in the creation of collective farm output and income.
The gross production if a collective farm means the entire amount of the
agricultural produce and raw material produced in its socialised sector during a
year. The size of the value, or of the social costs of production of collective farm
production for a given year is determined by the total amount of socially-
necessary labour, both living and congealed, embodied in this production,
including the expenditure incurred in the previous year towards the harvest of the
year in question (opening-up and cultivation of fallow land, sowing of winter
crops, first ploughing of ploughlands, etc.).
In connection with the role played by the M.T.S. in collective farm
production the labour of industrial workers, expended in producing tractors,
combines and other agricultural machines, spare parts for these, fuel, lubricants,
etc., forms an ever-increasing share of the value of collective farm production.
The share contributed by the skilled labour of the engineering and technical
personnel of the M.T.S. is also increasing.
The constituent parts of the value of collective farm production are, first,
the value of the used-up means of production of the collective farm and M.T.S.;
second, the value of the product for themselves created by the collective farmers
and M.T.S. workers; third, the value of the product for society created by the
collective farmers and M.T.S. workers.
Owing to the peculiarities of co-operative collective farm property and to
the participation of the M.T.S. in the creation of collective farm production, the
formation, replacement and distribution of the value of the production of a
collective farm takes place in a different way than in a State enterprise, e.g., in a
State farm. It is necessary to distinguish the expenditure of labour and resources
carried out directly by the M.T.S. from the expenditure of labour and resources
carried out directly by the collective farm.
One of the most important indices of the results of socialist management in
a given collective farm and the M.T.S. which serves it is the costs of collective
farm production. In calculating the costs of collective farm production there must
be taken into account the value of the means of production of the collective farm
and of the M.T.S. used up per unit of production, and the expenditure of resources
on payment for the labour of the collective farmers and the M.T.S. workers.
The value of the M.T.S. means of production used up, the expenses of
paying for the labour of the M.T.S. workers, and also the net income created by
the M.T.S. workers in assisting collective farm production, are replaced by the
agricultural produce which the collective farm hands over to the M.T.S. in the form
of payment in kind. This part of collective farm production in kind passes from the
collective farms to the State without assuming commodity form, Without any
buying and selling. It constitutes part of the so-called extra-rural turnover and is
taken into account in calculating the degree to which collective farm production is
marketable.
The collective farms make good the means of production they have
themselves expended on securing their output, mainly in kind, reproducing them
in their socialised sector. Such means of production include seeds, livestock,
fodder, organic manure, etc. The collective farms replace a certain part of the
expended means of production by purchases from State and co-operative
organisations. Such means of production include: vehicles, small-scale
equipment, small motors, simple machines, artificial manures, pedigree stock,
building materials, etc.
The labour of the collective farmers newly expended on collective farm
output creates the gross income of the collective farm. Gross income is the result
of the labour of collective farmers for themselves and of their labour for society.
That part of the gross collective farm income which is created by labour for
themselves (expended by the collective farmers in their socialised sector) forms
the personal income of the collective farmers, distributed according to work-days.
In addition to this, the collective farmers obtain personal income from their
subsidiary home plots. That part of the gross income which is created by the
labour of collective farmers for society (for the socialised sector of the collective
farm and for society as a whole) forms the net income of the collective farm.
The size of the net income depends above all on the level of productivity of
labour attained. The productivity of labour in agriculture is determined by a
variety of conditions. Decisive significance in the raising of the productivity of
labour belongs to the mechanisation of agricultural work, fuller and more efficient
use of machines and tractors and of the collective farms own means of
production, correct organisation and payment of labour, the development of
socialist emulation, and the introduction into production of the achievements of
agronomy and veterinary science and of the experience of advanced people in the
field of socialist agriculture. As V.I. Lenin showed, in the last analysis all
differences in the economic organisation of agricultural enterprises; their
technique and so on, are summed up in the yields obtained. The results of
economic activity in the field of stockbreeding find expression in the amount of
meat, milk, wool and other animal products obtained.
On the basis of the growth in the productivity of labour, of economy in the
expenditure of living and congealed labour per unit of production, the costs of
collective farm production must systematically decline. The higher the productivity
of labour in collective farm production, the lower the productive expenditure oh
means of production and payment of labour per centner of grain, cotton, flax,
beet, meat, milk, wool and other forms of agricultural produce, and the better the
socialised economy pays. Comparison between the production outlay and the
results obtained, expenses and income, observance of a strict regime of economy
of embodied and living labour, struggle against every kind of unnecessary and
unproductive expenditure, a proper organisation of the financial side, accounts
and bookkeepingthese are the conditions necessary for correct leadership of the
development of the socialised sectors of the collective farms along the road to
further progress. Calculating the outlay of collective farms and M.T.S. on collective
farm production is very important for determining the economic profitability of the
production of particular products, for planned, rational distribution of agricultural
crops and kinds of stock as between parts of the country, and for determining the
results of the economic activity of the collective farms and M.T.S., the degree to
which they are paying (their profitability).
Collective farm income is divided into income in kind and in money.
Collective farmers receive part of the remuneration for their labour in kind (grain,
vegetables, fruit, meat, milk, and, so on), the other part in money. The increase
in the socialised funds of the collective farms takes place partly in kind (seed,
fodder, etc.) and partly (the indivisible fund, etc.) in money. Under conditions of
commodity economy the money incomes of the collective farms play a big part in
the development of collective farm production and the growth in the welfare of
the collective farmers. The money incomes of the collective farmers, are formed
by selling their marketable surplus to the State and the co-operatives through the
system of State procurement and purchase and also through direct sale to the
population on the collective farm market.
A considerable part of collective farm commodity production becomes
available to the State as State procurements of agricultural produce, which
include compulsory deliveries and contract purchases. State purchases through
compulsory deliveries is made in the case of grain crops, livestock produce,
potatoes and a number of other vegetable crops. State purchases by means of
contract are made predominantly in the case of industrial crops.
The consistent application of the principle of the material interest of
collective farms and collective farmers in increasing agricultural output is the
basis of the policy of the Communist Party and the Soviet State as regards
compulsory and voluntary deliveries of agricultural produce to the State. This is
achieved by establishing firm prices for compulsory deliveries and voluntary sales,
which ensure the reimbursement of expenditure ,on the production of agricultural
produce and the growth of collective farm cash income and also by applying firm
quotas of compulsory deliveries for each district.
State procurements in the form of compulsory deliveries of agricultural
produce by the collective farms are carried out on the basis of the acreage
principle, i.e., in accordance with the quantity of land secured to the collective
farm. Each collective farm is obliged to sell to the State as compulsory deliveries
a definite quantity of the output of crops per acre of arable, and of livestock
produce per acre of ground area. The acreage quotas of compulsory deliveries are
permanent. The progressive significance of such a system of compulsory
deliveries of agricultural produce lies in the fact that it raises the interest of the
collective farmers in developing their socialised cultivation and livestock breeding,
and in the fullest use of the socialised land of the collective farm.
With fixed, permanent quotas of compulsory deliveries, the collective farms
are assured that, after fulfilling their obligations to the State, they can freely at
their own discretion dispose of the collective farm produce.

In accordance with the decisions of the September, 1953, Plenum of the Central Committee
of the Communist Party of the Soviet Union, and the subsequent decisions of the Communist Party
and the Soviet State, the incorrect practice, which laid down exaggerated quotas of compulsory
deliveries for the more advanced collective farms, and thus reduced the material interest of
collective farms and farmers in increasing output, was abolished. Quotas of compulsory deliveries
to the State have also been reduced for a number of agricultural products. New fixed district
quotas have been laid down for these deliveries, which cal1not be raised by the local authorities.

Compulsory deliveries of agricultural produce by collective farms to the

State are not a tax in the economic sense of the word since the State pays for
this produce. The Soviet State plans and lays down firm procurement prices for
agricultural produce acquired by centralised statutory deliveries. In planning these
prices the State takes into account the value of each agricultural product, its
significance for the national economy and the economic advantage of its
production for the collective farm. At the same time these prices for compulsory
deliveries are laid down at a level which ensures the handing over to State funds
of part of the collective farm net income to meet the general State needs. State
income from the sales of produce received through compulsory deliveries is used
for public needs: for the development of socialist industry, which supplies
agriculture with machines and fertilisers, on education, on health, etc. For some,
agricultural produce the State, in addition to the fixed price, grants cash bonuses
and organises a return sale of grain, manufactured goods and foodstuffs.
Moreover, some of them are sold at preferential State prices, which are lower
than those usually charged.
Apart from compulsory deliveries and contract purchases of industrial crops,
the State acquires agricultural produce from collective farms and collective
farmers in the form of State purchases, at purchase prices which exceed those
paid for compulsory deliveries. In this purchasing of agricultural produce the State
carries on return sales to the collective farms and collective farmers of
manufactured goods.
Finally, the collective farms sell to the population a certain part of their
saleable output on the collective farm market, at prices formed in this market
under the influence of supply and demand.
Compulsory deliveries to and voluntary purchases by the State are a most
important source of the collective farms money income, which is used to
supplement the indivisible fund, to pay the work-days of the collective farmers,
and for other purposes.
The level of compulsory and voluntary purchase prices is of very great
importance in connection with the raising of the material incentive of the
collective farms and collective farmers to develop collective farm production. As
has been mentioned, the law of value, though not the regulator of socialist
production, exercises an influence on the formation of the prices of agricultural
products. The prices at which marketable produce is sold have a strong bearing
on the state and development of collective farm production and its particular
branches. These prices must make good the outlay on production and guarantee a
certain degree of profitability. If these requirements of the law of value are
ignored, the material incentive of the collective farms and farmers to develop one
or other branch of the socialised sector may be undermined. Thus, at the
September, 1953, Plenum of the Central Committee of the Communist Party of
the Soviet Union it was established that the level of compulsory delivery and
voluntary sales prices which formerly existed for a number of agricultural
products was not stimulating the collective farms and collective farmers to
increase their production. The necessity of raising these prices in keeping with the
requirements of the law of value arose.

With a view to increasing the personal material interest of collective farmers in a further
improvement in agriculture, compulsory delivery and voluntary sale prices were considerably
raised, quotas of compulsory deliveries reduced, the share of purchases at the higher purchase
prices increased, and the agricultural tax on the personal subsidiary holding of the collective
farmers reduced. The growth of the marketable production of agriculture and the increase
mentioned above in the prices paid by the State for agricultural produce led to a considerable
increase in the money incomes of the collective farms and farmers. They received for their produce
delivered and sold to the State, in 1953 12 milliard roubles more, and in 1954 25 milliard roubles
more, than in 1952.
 The main way to further a great improvement in all branches of agriculture
consists in raising the level of collective farm production, increasing gross and
marketed output and reducing expenditure per unit of output.

Differential Rent in Socialist Economy

The economic and natural conditions for the formation of differential rent
exist in the collective farms. The existence of differential rent in the collective
farms is bound up with the fact that, first, the nationalised land, as the property
of the whole people, handed over to the collective farms gratis for perpetual use,
is used directly by separate collective farms, based on co-operative collective
farm ownership, which is of a group character, and second, that under conditions
of commodity economy commodities that are produced under different conditions
of productivity of labour are sold at the same price. Collective farm lands differ
among themselves in fertility, situation and the degree of productive utilisation,
which is mainly connected with the extent to which agriculture has been
mechanised. In so far as the quantity of the best land is limited, socialist society
is compelled to work also the poorer land in order to satisfy its requirements in
respect of agricultural produce. The labour of collective farmers, applied in
different conditions of production, results in different productivity.
Collective farms with different levels of labour productivity produce a
different quantity of agricultural produce per acre. This means that they expend a
dissimilar quantity of labour per unit of output.
Collective farms applying their labour on the best land, under the most
advantageous conditions of production and sale, create, compared with collective
farms working poorer land under less advantageous conditions, additional income.
This income in its natural form consists of various agricultural products: grain,
cotton, meat, milk, wool, etc. One part of this additional income is expended in
kind, the other part is realised in cash.
Since the total output produced by the collective farms is collective farm
property, the additional income which is the result of higher productivity of labour,
for example, on better, more fertile land, also becomes the property of the
individual collective farms.
The additional income of the collective farms realised as money is
connected with the peculiarities of price formation in agriculture. The total
additional income created in the collective farm and expressed in money form, is
the difference between the social production costs (or social value) of the
agricultural produce and the individual production costs (or individual value) of
that produce. The extent to which this difference is secured by the collective
farms depends on the level of prices.
The scarcity of the best land cannot but influence the price level of
agricultural produce. The need to ensure that cultivating one crop or another will
be profitable, not only in the best but also in the worst production conditions, is
taken into account when prices are planned.
The output produced in collective farms in different conditions of labour
productivity is realised at the same prices for compulsory deliveries and voluntary
sales, for the zone concerned, or at the same prices on the collective farm.
market. Consequently, the collective farms with higher labour productivity obtain
additional money income.
The differential rent of the collective farms is the additional net income, in
kind or in money, created on. the collective farms which have the most fertile, or
more conveniently disposed) portions of land, as well as by those which use the
land more productively, compared with the collective farms using poorer portions
of land or more remote land, or utilising it less productively.
In socialist economy differential rent is fundamentally different from
differential rent under capitalism. It is not the consequence of exploitation, but is
the result of the collective labour of collective farmers working for themselves and
for their socialised sector, as well as the result of the labour of the workers in the
M.T.S. which serve the collective farms. In socialist economy it does not assume
the form of ground-rent, and it accrues not to a class of large landowners, but to
the collective farms, collective farmers and also to the Socialist State.
Two forms of differential rent, first and second, should be distinguished.
Differential Rent I is the additional net income created by collective farms
which have been endowed with the best land and also by collective farms situated
closer to their points of disposal. Other conditions being equal, at a similar level of
mechanisation, with one and the same system of tillage, collective farms which
dispose of the best land obtain more produce per acre than collective farms
situated on poorer land. In consequence of higher productivity of labour in
collective farms having at their disposal the best lands, these collective farms
accordingly obtain higher income.
Collective farms situated nearer to railway stations, wharves, State
purchasing offices, towns, and other points of disposal expend less. labour and
resources on transporting their produce. Therefore expenditure per unit of output
in these farms is lower than in collective farms situated at a distance from their
points of disposal. Collective farms with these advantages in their situation also
obtain additional income.
Differential Rent II is the additional net income created in collective farms
maintaining a more intensive socialised sector) as compared with collective farms
that maintain a less intensive socialised sector.
Collective farms with a higher level of mechanisation, raising soil fertility by
carrying out land improvement, the application of fertilisers, etc., and with a
larger quantity of highly productive stock, i.e., maintaining a more intensive
economy, obtain greater output per acre of land than collective farms with a less
intensive economy. As a consequence of their higher productivity of labour, the
intensive economy expends less labour per unit of output and a higher income in.
kind and money is obtained. This is an important stimulus for the collective farms
to intensify agriculture.
The distribution of differential rent under socialism has the following
peculiarities. In so far as differential rent I, received in collective farms, is not
connected with additional outlay of means of production and labour, to that extent
it must be applied to the needs of the people as a whole. The Fundamental Law
on Socialisation of the Land, signed by V. I. Lenin, declared: Surplus income
received from the natural fertility of better pieces of land and also from the more
advantageous location of pieces of land in relation to markets, shall pass to the
disposal of the organs of Soviet power, to be used for public needs. (The
Agrarian Policy of the Soviet Power, I917-18. Documents and Materials, U.S.S.R.
Academy of Sciences, Russian edition, 1954, p. 137.) .
Since differential rent II arises as a result of intensification of agriculture,
thanks to additional investment of means of production and labour by the
collective farms and M.T.S; in one and the same area of land, it must be
distributed between them in proportion to the outlay they have made.
Part of the differential rent received by the collective farms goes to develop
their socialised sector and to raise the material and cultural standard of life of the
collective farmers. Part of differential rent passes into the hands of the State for
public requirements, through the following channels. First, it becomes available
through payment in kind to the M.T.S., in so far as additional net income created
by the labour of the M.T.S. workers is embodied in it, while rates of payment in
kind differ considerably as between zones: as well as because when the
harvesting plan is overfulfilled the M;T.S. receives part of the harvest collected in
excess of plan. Secondly, through the system of compulsory deliveries to the
State, since prices for these deliveries presuppose the redistribution of part of the
net income of the collective farms for the needs of general State expenditure,
while the quota figures for compulsory deliveries of produce by the collective
farms to the State vary according to the conditions of production in various
districts. Thirdly, in some part through the income tax on collective farms, since
the size of the tax depends on the level of collective farm income.

Distribution of Collective Farm Output and Collective Farm

Income. Growth of well-being of the Collective Farm
Peasantry

Forms of distribution of output different from those of State enterprises

exist in the collective farms, in keeping with the special features of co-operative
collective farm property.
The collective farms are an inseparable part of socialist national economy.
The collective farm peasantry is vitally concerned with the flourishing of the
economy and culture of socialist society and in strengthening its might. The State
provides the collective farms with great material help, both by selling collective
farm production, and also in the all-round development of the culture of the
collective farm village. Therefore, the timely fulfilment of their obligations to the
State is a most important task of the collective farms.
In accordance with the Statute of the agricultural artel the collective farms
sell part of their harvest and livestock products to the State at fixed, planned
prices as compulsory deliveries and as contract sales. The collective farms pay the
State in kind for work carried out by the M.T.S. Out of the cash income they have
obtained the collective farms repay money loans to the State, and, pay interest
on them. The collective farms also pay a small income tax, and pay for insuring
their property. The timely and complete fulfilment by the collective farms of their
obligations to the State ensures the correct combination of the interests of the
individual collective farms with the interests of the State and of the whole people.
The social funds of the collective farm, which are created in kind and in
cash, are of great significance in securing an uninterrupted rise in collective farm
production and the growth of the welfare of the collective farmers.
The social funds, set aside to make good the expenditure of collective farm
means of production, take the form of basic seed and fodder funds. As has
already been said, a considerable part of the expended collective farm means of
production are directly made good out of collective farm production, while some
means of production are purchased for cash.
After the replacement of expended means of production, the collective
farms use the gross income that remains for social funds of accumulation and
consumption, and for distribution among the collective farmers according to work-
days earned.
Social funds of accumulation in the collective farm are formed out of net
income. The increase of collective farm accumulation funds takes place primarily
by annual deductions from money income for the indivisible fund, except for that
part which is set aside for depreciation. Apart from this, the direct investments of
the labour of collective farmers in erecting farm buildings, in making agricultural
equipment for the collective farms needs, in constructing ponds and reservoirs, in
increasing the herd of socially-owned stock, improving its quality, etc., contribute
to the growth of indivisible funds. Part of the net income goes to accumulation in
kind. This includes seed and fodder set aside to increase the seed and fodder
funds in connection with the expansion of the area under cultivation: the growth
of the number of socially-owned stock and the raising of its productivity, as well
as insurance funds (seed and fodder) created in case of bad harvests or lack off
odder.
Also of great significance for raising the welfare of the collective farmers are
the social consumption funds created out of the net income in collective farms
the food fund in case of bad harvests; the assistance fund for the disabled, those
temporarily unable to work, for needy families of servicemen, for the upkeep of
crches, and for orphans; the cultural fund, i.e., the fund expended on serving
the cultural and everyday needs of the collective farm village (training of
collective farm personnel, organisation of crches, etc.).
Remuneration of labour in the collective farms is founded on principles
which secure the personal material interest of the collective farmers in increasing
the production of grain, livestock and other agricultural produce.
After fulfilling all its obligations to the State, and forming the statutory
social funds, the collective farm divides all the remaining produce and its cash
income between the members of the artel according to work-days earned. Income
received by the collective farmers on account of their work-days is not subject to
any tax.
The income received from the socialised sector of the artel by each
collective farmer depends on two quantities: (1) the number of work-days he or
she has earned; (2) the size of remuneration per work-day. The number of work-
days earned in the course of a year is determined by the work of each collective
farmer. The size of remuneration per work-day, i.e., the quantity of produce and
money which a collective farmer receives for one work-day, depends on the work
of all the members of the collective farm. The better the collective farm works as
a whole, the more successfully its socialised sector develops, the higher is both
the total collective farm income and also the size of that part of it which is
distributed according to work-days earned. Part of the net income of the collective
farm which remains after fulfilment of obligations to the State and the formation
of the statutory social funds, also goes for distribution according to work-days.
Apart from this, the income of the collective farmers from the socialised sector
also increases through the social consumption funds which have been mentioned.
All this creates a material interest of each collective farmer in developing the
socialised sector of the collective farm.
In order to fulfil more consistently the requirements of the economic law of
distribution according to work, a system of labour remuneration has been
established in the collective farms under which collective farmers achieving higher
production results obtain higher rewards for their labour, compared with collective
farmers achieving relatively lower results.
Additional remuneration of labour (in kind or money) for overfulfilment of
the plan laid down for teams and links, in respect of crop yields and productivity
of socially-owned livestock, is an important means of raising the personal interest
of collective farmers in the results of their labour.

For example, collective farmers in the field teams receive as an additional payment, for
overfulfilment of the planned yield on the total area of grain crops for which their team is
responsible, from a quarter to a half of the grain gathered by the team above that laid down as its
planned harvest.
Additional crediting to teams and links of a supplementary number of work-days, for
overfulfilment of the planned yield for agricultural crops, and the deduction of a certain part of
their work-days for underfulfilment of this plan, are also practised.
Remuneration of the labour of collective farmers working in collective farm livestock
departments depends on milk yield, wool clip, birth and rearing of young animals, increase of live
weight of store cattle, etc.
Of great importance in raising the material incentive of the individual collective farmers is
the practice of regularly giving them advances in cash and in kind during the year, against the
payments due to them for work-days.

Thus the personal interests of the collective farmers and the social interests
of the collective farm are correctly combined in the work-day and in the system of
distributing collective farm income. The measures taken by the Communist Party
and the Soviet State to increase the material interest of collective farms and
collective farmers in a further advance of agriculture strengthens still more the
union of the working class and collective farm peasantrythe foundation of the
might of the Socialist State.
 Apart from the socialised sector of the collective farm, which is of decisive
significance, a subsidiary personal holding of collective farmers near their homes
exists in the agricultural artel. In this way the correct combination of the social
and personal is also achieved in the artel, with the subordination of the latter to
the former. Any violation of the principle of correct combination of the social and
personal in collective farms undermines the basis of the agricultural artel, and of
the alliance of the working class and the peasantry.

Money income of collective farms rose from 5.7 milliard roubles in 1933 to 20.7 milliard
roubles in 1940, to 49.6 milliard roubles in 1953, and to 63.3 milliard roubles in 1954. In addition,
the collective farmers obtain money income from their subsidiary holdings near their homes. With
the money income obtained from the socialised sector and their personal holdings, collective
farmers buy manufactured goods at the planned prices of State and co-operative trade, which are
systematically being reduced.

The appearance of the Soviet countryside has fundamentally changed on

the basis of the collective farm system. In place of the old village a new one has
arisen, with public farm buildings, power-stations, schools, libraries, clubs and
childrens crches. The Soviet peasant is a peasant of a new type, possessed of
the benefits of science and culture. Wide sections of the Soviet intelligentsia
engineers, doctors, agronomists, veterinary workers, teachers, organisers of
large-scale socialist production -have emerged from the ranks of the collective
farm peasantry. Many collective farmers have become expert in advanced
agricultural technique, have become masters in the art of securing high crop
yields and highly productive stockbreeding.

These facts testify to the extensive cultural revolution which has taken place throughout
the Soviet countryside, The total number of students in elementary (seven-year), and secondary
(ten-year) schools in the countryside increased from 6.1 millions in 191415 to 21.1 million in
1951-2. In 1952 29 million persons were studying in the countryside at all forms of education
(including the training, elementary and advanced, of those in mass professions, specialists, and so
on). On January 1 1955, there were 275,000 cultural and educational institutions in the
countryside: libraries, clubs and cinemas. In the Soviet village not only has obligatory elementary
education been given effect, but the task of general seven-year education is being successfully
carried out.

Development of the State Farms and Ways of Raising their

Profitability

The State farms are, by their social and economic nature, the highest form
of organisation of socialist agriculture. The State farms are State socialist
enterprises producing grain, meat, milk, wool, and various industrial crops. All
their means of production, as well as their output, are public property.
The State farms, as the largest agricultural enterprises, have the possibility
of using to the utmost modern agricultural technique, applying rational division of
labour, economising in expenditure on farm buildings, equipment, etc.
State farms are equipped with modern agricultural machinery, which makes
possible the mechanisation of almost all production processes and creates the
necessary conditions for achieving high labour productivity. The highest level of
mechanisation has been achieved in grain farming. Complex mechanisation of all
branches of production is being effected in the State farms. The sizes of State
farms are determined by their particular branch of production, the economic and
natural conditions of the districts where they are situated, the level of technique
achieved and the necessity of all-round and productive utilisation of each acre of
land. The most important economic index of the size of a State farm, within the
limits of a particular production trend, is the size of its gross and marketable
production. The specific sizes of State farms differ in different parts of the
country.
The high marketable output of State farms is one of their great advantages.
The marketable output of grain in the grain State farms averages about 70 per
cent. The State farms supply the State with a considerable quantity of agricultural
produce.
The immense possibilities of the State farms, however, are quite
insufficiently used. There are still not a few State farms which, as a result of bad
guidance, use great tracts of land wastefully, produce little grain, milk, meat or
other produce and run their affairs at a loss. Overcoming these faults, and
skilfully using the advantages of the State farms as highly mechanised, large-
scale socialist enterprises will make it possible sharply to increase output and
delivery to the State of agricultural produce in a very short time.
In the development of socialist agriculture in the period of the gradual
transition from socialism to communism the part played by the State farms in
supplying the country with food-stuffs continues to increase.
The planning procedure for State farm production laid down by the State,
determining as it does the amount of marketable produce rendered to the State
as the basic index, releases the initiative of the State farm workers to improve
production by intensifying it so as to get the greatest possible amount of produce
from the land with the least outlay of labour and resources.
The State farms are capable of becoming highly productive, highly
profitable farms, acting as an example of the rational organisation of agricultural
production, high yields of agricultural crops and productivity of livestock.
Complete and productive utilisation of their land funds is of the greatest
significance in raising the profitability .of State farms.
The most rational basic production trend of the State farm, i.e., its
specialisation on the production of grain, meat, milk, wool, cotton, flax, or beet,
etc., is determined by the natural and economic conditions of the district. For
specialised state farms one of these branches is basic. In addition to the basic
branches, all-round development of additional and subsidiary branches is
required: vegetable growing, fruit growing, viticulture, poultry farming and bee-
keeping. The degree of development of each additional and subsidiary branch is
determined by taking into account the possibility of securing a high marketability
and profitability of these branches of the economy.
Narrow specialisation on the production of anyone crop, or the breeding of
anyone form of stock, does not afford the opportunity for making productive use
of land, leads to losses in farming and harms the State. Highly mixed, varied and
well-developed State farm production, while preserving specialisation in the basic
branches, ensures the achievement of the maximum quantity of agricultural
produce per acre of arable, meadow and pasture. It is especially important that
State farms should provide their own seeds for their sown areas, and fodder for
all their stock.
Increasing gross and marketed production per acre of agricultural land
means the reduction of production costs and the raising of the profitability of the
farm. State farms, being large-scale highly mechanised enterprises, can raise
agricultural produce with least labour expenditure and supply the country with it
at the lowest prices. The reduction of the production costs of State farms is
achieved by further mechanisation of production, raising the effective use of the
machine and tractor! pool, improved organisation of labour, the application in all
branches of State farm production of the achievements of agricultural science and
the experience of the best workers, the introduction of complex agronomic and
veterinary measures, the struggle against losses and the observance of a regime
of economy. All this leads to raising the productivity of labour, which is reflected in
increased yields of agricultural crops and productivity of livestock.
State farms work on the basis of economic accounting. The level of
profitability of a State farm is determined by the net income it obtains. The net
income created in the State farm is the difference between the cost of production
and the value of the agricultural output. The net income realised by the State
farm is the difference between the cost of production and the price of the
agricultural output sold by the State farm to the State or, to a limited extent, sold
on the market. Part of the net income created in the State farm is realised by the
procurement organisations and in the sale of State farm produce to the
population.

With a view to increasing the material interest of State farms in developing production, the
State subsidy for State farms which formerly existed was abolished in 1954, and new delivery
prices were introduced for grain, oil crops and the basic forms of livestock produce, so as, on the
basis of reduced costs, to ensure that each State farm could make a net profit. The State farms
deliver the produce of their main brandies of agriculture to the State at delivery points and at fixed
delivery prices. The State farms sell the produce of their subsidiary branches, including what is
processed within the farm, directly to the consumer at State retail prices. The abolition of the
State subsidy to the farms, and their adoption of the method of economic accounting, is a most
important economic measure in the sphere of State farm construction, and lays a firm basis for the
rational running of their economy.

The net income remaining at the disposal of the State farm, and
accumulated in money, is spent on strengthening and. expanding its farming and
on improving the cultural and social amenities for State farm workers (childrens
institutions, clubs, rest homes and sanatoria, etc.). Special funds are formed for
this: the fund for strengthening and expanding the economy of the State farm,
the insurance fund, the enterprise fund.
The development of State farm production depends, to an enormous extent,
on strengthening socialist forms of labour organisation and the consistent
application of the socialist principle of payment according to work done.
The permanent production team is the basic form of labour organisation in
the sectors and livestock departments of the State farm. In field cultivation there
are tractor field teams which are allotted portions of land in the fields with crop
rotation, tractors, combines and other agricultural machines, means of transport,
and work equipment. Special links are formed in the team to grow those
agricultural crops production of which is inadequately mechanised. In the
livestock departments of State farms livestock teams are formed, to which are
allotted stock, the equipment necessary for its care, livestock buildings, etc.
The principle of material interest of the State farm workers in raising the
yield of agricultural crops, productivity of livestock and profitability of the farm is
applied through a system of piece-rates paid in money. Money bonuses are
granted for above-plan yields of agricultural crops, for high indices of livestock
productivity: milk yield, wool clip, birth and rearing of young animals, etc., Those
working at combine-harvesting (combine operators, their assistants, tractor
drivers and others) receive, apart from money wages, wages in kind and
supplementary grain bonuses in kind. Money bonuses are laid down for leading
State farm workers and specialists who fulfil and overfulfil production plans and
delivery of produce to the State.
The material interest in the results of their labour, both of the State farm as
a whole, and also of its individual workers, is a most important condition for the
uninterrupted growth and improvement of State farm production.

BRIEF CONCLUSIONS
(1) The socialist system of agriculture, in the form of collective farms,
M.T.S., and State farms, is the highest and most progressive form of organisation
of agricultural production. Agriculture in socialist society is called on to secure the
all-round satisfaction of the populations requirements in foodstuffs and those of
industry in raw material. The raising of labour productivity in socialist agriculture
is expressed in the greatest output of produce per acre of agricultural land, with
the least expenditure of labour and resources per unit of produce.
(2) Machine and tractor stations are the industrial material and technical
base of collective farm production and the support points for guidance of the
collective farms by the Socialist State. The all-round raising of the yield of all
agricultural crops in collective farms, the securing of an increase in the number of
socially-owned stock, while simultaneously raising its productivity, the increasing
of gross and marketable output of cultivation of the soil and stockbreeding in the
collective farms servedthese are the basic tasks of the machine and tractor
stations. Machine and tractor stations playa decisive part in developing collective
farm production.
(3) The agricultural artel is the only correct form of collective farm in
socialist economy. The collective farms, as socialist co-operative enterprises, are
run by the collective labour of their members, with the aid of basic means of pro-
duction owned by the Socialist State, and some means of production owned by
the collective farms. In the U.S.S.R. the land occupied by the collective farms has
been handed over to them by the State for perpetual use without payment. The
Soviet State expends great sums on financing agriculture and satisfying the
cultural requirements of the collective farm peasantry.
(4) The socialised sector of the collective farms is the source for the growth
of collective farm wealth and the base for the welfare of the collective farm
peasantry. In the collective farms the requirements of the economic law of
distribution according to work done are met by means of the work-day. The work-
day is a particular measure of labour and consumption, arising from the collective
farm system, which combines the personal, material interest of the collective
farmers with the interests of the socialised sector of the collective farm. The
consistent realisation of the principle of the personal, material interest of the
collective farmers in raising collective farm production is a necessary condition for
carrying out a further advance of agriculture.

(5) Large-scale collective farming makes possible a high income. Additional

income received from the collective farms situated on the best land, or the most
productively used land, forms differential rent. Differential rent of collective farms
falls to the collective farms and farmers, but is also transferred to the State.
(6) The produce and money income of the collective farm, in accordance
with the Statute of the Agricultural Artel, go to fulfil the collective farms
obligations to the State, to form its social funds and to remunerate the labour of
the collective farmers according to work-days earned. In keeping with the basic
economic law of socialism, the collective farm system secures the uninterrupted
growth of the material well-being and the cultural standard of life of the collective
farm peasantry.
(7) The State farms are very large-scale and highly mechanised State
agricultural enterprises, and play an ever-growing part in agricultural production.
The State farms work on the basis of economic accounting. The uninterrupted
growth of labour productivity and the material interest of the State farms and
their workers in the results of their labourthese are the essential conditions for
the conversion of all State farms into model, highly productive and profitable
enterprises.
 CHAPTER XXXVI

TRADE IN SOCIALIST ECONOMY

The Nature and Role of Trade in Socialist Society

The need for trade in socialist society arises from the existence of
commodity production and the law of value. In so far/as under socialism
consumer goods are produced as commodities, the distribution of them, their
conveyance to the consumer, inevitably takes place through commodity
circulation. The socialist mode of production has its own form of commodity
exchange, known in the U.S.S.R. as Soviet trade, which differs fundamentally
from capitalist trade. Soviet trade is without capitalists. In the U.S.S.R.
commodities are sold by State and co-operative enterprises and organisations,
collective farms, and collective farmers. The resources of Soviet trading
enterprises are socialist property. With the complete predominance of socialist
property in all spheres of the national economy, the conditions for the existence
of such categories as commercial capital, commercial profits, etc., have
completely disappeared in the economy of the U.S.S.R..
In socialist society trade is carried on in accordance with the requirements
of the basic economic law of socialismthe satisfaction of the growing material
and cultural needs of the working peoplein contrast to capitalist trade which,
since it is a function of commercial capital, is carried on for the enrichment of the
capitalists.
The bulk of articles of personal consumption produced in socialist society
goes to the population through trade. By far the greater part of the incomes of
the population is spent on the purchase of articles of personal consumption
foodstuffs, clothing, footwear, cultural and household goods. Only a part of these
goods are distributed directly, without making use of trade, as for example the
distribution of products in kind to collective farmers on account of work-days
earned.
The development of trade is very important in providing the working people
of town and country with a personal material interest in the results of their labour
and in raising its productivity. Soviet trade is an essential prerequisite for the
operation of the economic law of distribution according to work, since the
realisation of the money income of the working people takes place through its
channels. The various requirements of the working people, according to their
incomes, depend for their satisfaction to a large extent on the development of
Soviet trade and on the quality of its service to the consumers.
The collective farms acquire goods for use in production through the trading
systemagricultural machinery, various implements, electrical equipment, fuel,
building materials, automobiles, etc. Trade also includes the compulsory deliveries
and voluntary sales of agricultural produce to the State and co-operative
organisations by the collective farms and collective farmers.
Soviet trade, as Lenin taught, is a form of economic bond between town
and country. It is a vitally important link in the system of economic connections
between State industry and collective farm agriculture. The development of the
trade bond between town and country is an essential prerequisite for the further
strengthening of the alliance of the working class and peasantry, for providing the
urban and rural population with articles of consumption, and industry with
agricultural raw materials.
The division of labour between production and trade organisations and the
assigning of the function of commodity circulation to the trading and procurement
organisations constitutes a great economy for socialist society, facilitating the
acceleration of the turnover of the social product and a restriction of the
resources engaged in the sphere of circulation. This enables the resources going
to expand socialist production to be increased.
While itself based on socialist production, Soviet trade is at the same time
an essential prerequisite for its further development and consolidation. The
growth of industry and agriculture and increased demand of the population for
commodities are by themselves still insufficient to secure a steady expansion of
the socialist economy.

If the economic life of the country is to go full steam ahead, and

industry and agriculture are to have a stimulus for further increasing their
output, one more condition is necessarynamely well-developed trade
turnover between town and country, between the various districts and
regions of the country, between the various branches of the national economy.
The country must be covered with a vast network of wholesale distribution
bases, shops and stores. There must be a ceaseless flow of goods through
these bases, shops and stores from the producer to the consumer. (Stalin,
Report to the 17th Congress of the C.P.S.U. (B), Works, English edition, Vol.
XIII, pp. 347-8.)
 Soviet trade links socialist production to national consumption. Under
capitalism the connection between production and consumption is brought about
through the uncontrolled mechanism of competition and through crises. In
socialist economy the operation of the law of planned, proportional development
of the national economy makes possible and necessary the utilisation of trade as
a means of achieving planned connection between production and consumption.

The law of balanced, proportional development of the national

economy that operates in our society calls for the conscious and organised co-
ordination of production and consumption.
Since our economy is planned, we can directly and not in a
roundabout way calculate demand and develop production accordingly.
Herein lie the tremendous advantages of our system. But this imposes a
tremendous responsibility upon the distributing organisations, for success
depends on us alone, on our organisation and ability. (A. I. Mikoyan,
Measures for the Further Expansion of Trade and for Improving the
Organisation of State Co-operative and Collective Farm Trade. Report
delivered at All-Union Conference of Distributive Workers, 17 October 1953.
F.L.P.H., p. 19.)

Soviet trade is based, on the one hand, on the continuous expansion of

socialist production, and on the other hand on the constant growth of the
requirements and purchasing power of the masses. The rising living standards of
the population, the growth of money incomes of the working people and the
systematic reduction of prices create a constantly growing demand for the
products of industry and agriculture. Consequently the sales difficulties and selling
crises characteristic of capitalism are unknown to Soviet trade.
The Soviet State and its institutions. prescribe the volume and structure of
the output of articles of general consumption, the sources and size of commodity
funds and the rational movement of commodities; and they plan the structure and
location of the trade network. They distribute commodity resources between
different areas, taking account of the purchasing capacity of the population and
the pattern of its incomes and expenditures.
Thus, trade under socialism is the form of commodity exchange by which a
planned connection between town and country, socialist production and popular
consumption, is achieved, for the purpose of satisfying the growing demands of
the working people.
The need for all-round assessment of the demand of the population, the
developing tastes of the consumers, national and local peculiarities, climatic and
seasonal conditions, etc., springs from the very nature of Soviet trade. Only in
this way can commodity circulation be correctly planned so that the mass of
commodities supplied to each district corresponds not only to the total volume of
demandthat is, its total valuebut also to the precise range of goods
demanded; that is, in accordance with its use-values.
Soviet trade actively influences the formation of consumer-demand and
helps to introduce new commodities into daily use. In doing so, it utilises
advertising as a means of honest information for the consumer about the quality
and uses of different commodities. This contrasts with capitalist advertising, which
is for the purpose of making profit at the expense of the consumer. The level and
correlation of prices of commodities sold to the public is an important factor in
forming demand.
The high level of purchasing power in the U.S.S.R. does not in any way
mean that any commodity is automatically assured of sale. With rising living
standards, the requirements of the masses of the people are becoming
increasingly more varied and there is a growing demand for quality goods. A
necessary condition for the more complete satisfaction of the populations
demands is the elimination of defects in the planning of the production of
consumer goods and commodity circulation, which often takes place without
demand being properly taken into account so that the possibilities that exist for
the production and sale of certain commodities are not utilised. Trading
organisations must be able quickly to adapt themselves to changes in demand.
They must not permit mechanical distribution of commodities or mistakes in their
dispatch to different districts. They are required to secure a steady improvement
of service to the consumer, serving the convenience of customers and saving their
time.
It is the function of Soviet trade to exercise an active influence on
production for the purpose of increasing the output of commodities which
correspond to the demand of the population. It must seek to improve the quality
of commodities, widening and improving their variety. The most important levers
at the disposal of Soviet trade for influencing production are: the system of
business contracts concluded between trading and industrial organisations for the
supply of a definite variety and quality of products; extensive use of the system of
advance orders placed with industry by the trade organisations; careful inspection
of goods received; and the application of sanctions for violation of terms of the
contractincluding refusal to accept low-quality products.
Very important in strengthening the active influence of Soviet trade upon
production is the widespread practice of direct contracts between local distributive
organisations and enterprises on the one hand and productive enterprises on the
other.
The correct organisation of community turnover presupposes a combination
of centralised supply with a wide development of the initiative of local organs in
mobilising commodity resources and increased responsibility for them in supplying
the population. The amount of goods which become available in any region
through centralised supply depends on how local possibilities for mobilising
commodity resources are utilised there. This enhances the incentive of local
organs to ensure the growth of local production and procurement.
An increase in the role of the local organs in planning commodity turnover
leads to the popular demand being better taken into account, with an
improvement in the operative capacity and flexibility of the distributive
organisations, which have as their task to facilitate in every way the drawing into
commodity circulation of the continually fresh supplies of additional local
resources.
 The movement of commodities within the country is conditioned by the
distribution of production, and by the level and structure of consumer demand in
the various districts. In connection with this, well-co-ordinated transport is very
important, as upon this largely depends the rapidity of commodity circulation.
In addition to the function of commodity circulation, the trading and
procurement organisations also undertake the transport, storage, sorting and
packaging of goods. These constitute a continuation of the production process in
the sphere of circulation.
Trade ensures a regular flow of financial resources required for renewal and
extension of production in the State and collective farm sectors. The velocity of
turnover of resources throughout the national economy depends to a large extent
in the rapidity with which commodities are sold. Through Soviet trade, that branch
of socialist industry which produces consumer goods receives the financial
resources which reimburse it for its expenditures and also provide both the net
income of the enterprises and the centralised net income of the State. Part of the
cash income obtained by the light and food-producing industries from the sale of
commodities passes to heavy industry as payment for means of production.
Uninterrupted sale of commodities through the channels of Soviet trade secures
the timely flow into the State funds of the financial resources earmarked for
utilisation throughout the national economy. The sale of their marketed output by
the collective farms and the collective farmers is a source of monetary income
used both to strengthen and develop the socially-owned economy of the collective
farms and to satisfy the. personal requirements of the collective farmers.
The expansion of Soviet trade, with an increasing quantity of commodities
sold at stable planned prices, is a most important condition for strengthening the
stability of Soviet currency.
With the development of socialist production and the increasing welfare of
the people, trade turnover is growing, and its structure is being improved; the
proportion of higher quality commodities and more valuable grades is increasing,
and their variety is being enlarged.

The volume of State and co-operative retail trade in the U.S.S.R. increased 2.3-fold
between 1928 and 1940 (in comparable prices), whereas in the capitalist countries in the same
period, trade not only failed to increase, but was below the 1929 level on the eve of the second
world war. In 1954 retail trade in the U.S.S.R. (in comparable prices) had increased two-fold
compared with 1940, and 1.8-fold compared with 1950; while in the U.S.A. the 1954 volume of
trade had risen only slightly above the 1950 level, and in Great Britain it remained approximately
at that level.
In 1954 sales in State and co-operative shops had increased, compared with 1940, as
follows: meat 2.8-fold, fish and fish products more than 2-fold, butter 2.6-fold, vegetable oil and
other fats more than 3-fold, sugar 2.8-fold, textiles 2.5-fold (including woollen textiles nearly 3-
fold and silks 6-fold), footwear more than 2-fold, watches more than 6-fold, sewing machines
more than 7.5-fold, bicycles 12-fold and radio sets 18-fold.
The targets in the fifth Five-Year Plan for volume of trade turnover were fulfilled in four
years. Between 1950 and 1955 the volume of commodities flowing to the population from the
State and co-operative trade network grew about 1.9 times.

However, the level of commodity turnover which has been attained still lags
considerably behind the growing purchasing power of the working masses. The
group of measures introduced by the Communist Party and the Soviet State to
secure a sharp increase in agricultural production and in the production of
consumer goods creates the conditions necessary for a considerable development
of the commodity turnover in town and country corresponding to the increased
demand. The material and technical base of Soviet trade is being strengthened
and the network of warehouses and shops is being extended, especially
specialised shops. The fundamental tasks of gradual transition from socialism to
communism demand an all-round development of Soviet trade.

Forms of Trade under Socialism

Owing to the existence of the State and the co-operative collective farm
sectors of production, trade under socialism is carried on in the following forms:
(1) State, (2) co-operative, and (3) collective farm.
State trade plays the leading role and occupies a decisive place in both the
wholesale and the retail turnover of the U.S.S.R. The overwhelming mass of
commodity resources in the country which flow into Soviet trade are concentrated
in the hands of the Socialist State. Trading organisations receive the bulk of their
commodities from State industry. Passing mainly through State wholesale trade,
these commodities subsequently enter retail trade and are sold to the population.
State purchases, compulsory and voluntary, of agricultural produce from the
collective farms is industrys chief supply source for the raw materials which are
made into articles of personal consumption, and also are the basis of the
populations food supplies. State farm production and payment-in-kind for the
work of the M.T.S. are also large sources of foodstuffs and agricultural raw
materials. In 1954, State retail trade embraced 63 per cent of the total retail
trade of the country. It caters primarily for the inhabitants of towns and industrial
districts.

State retail trade in personal consumer goods is carried on through: (i) the trade network
(shops, stores, wholesale bases, etc.) of the All-Union and Republican Ministries of Trade, (ii) the
departments of workers supplies in the transport system and in the coal, oil, metallurgical and
some other branches of industry, and (iii) the specialised trade network of certain Ministries,
through which the products of their particular factories are sold.

Co-operative trade is carried on by the trading enterprises of consumer and

producer co-operatives. The resources of the co-operative organisations are the
co-operative property of their member-shareholders. Co-operative trading
organisations have large credits from the Soviet State. Co-operative trade in 1954
embraced 27 per cent of all retail trade. By far the greater part of co-operative
trade falls to the consumer co-operatives, while the rest is done by the producer
co-operatives. Consumer co-operation mainly serves the rural population, and is
the main trading organisation in the countryside. In addition, however, the rural
population purchases a part of its commodities in the towns. Consumer co-
operation is allotted an important role in the State purchases of agricultural
produce. It is called upon to supply the rural population with consumer goods, to
give every possible assistance to the collective farms and the collective farmers in
the sale of their produce, and in this way to promote the growth of all branches of
agriculture and the material welfare of the collective farmers and all the working
people of the countryside.
State and co-operative trade also includes the turnover of public catering
establishmentscooked food factories, canteens, restaurants, buffets, etc.which
sell their products to the population. The extension of public catering economises
much working time in the national economy; it replaces not very productive
domestic labour by more productive socialised labour and considerably improves
the living conditions of the population. Public catering frees millions of women
occupied in housekeeping for participation in socialist production and public life.
Food resources can be utilised more rationally and economically by public
catering, while nutrition can be organised on scientific lines.
State and co-operative trade constitutes an organised market, directly
planned by the Socialist State. The organised market holds a predominant
position in the trade turnover of the U.S.S.R. In addition to the organised market,
however, there exists an unorganised market in the form of collective farm trade.
Collective farm trade is a form of Soviet retail trade in which the collective
farms and the collective farmers are the sellers, supplying agricultural
commodities to the population at market prices formed under the influence. of
supply and demand. The collective farmers sell on the market part of the produce
which they obtain from their individual holdings and for work-days put in on the
socialised sector of the collective farms. The need for collective farm trade arises
from the nature of collective farm group ownership and the existence of the
collective farmers individual holdings. The collective farms and farmers are the
owners of their own produce and dispose of it; they can sell it not only by way of
procurements and sales to the State but also on the market. Collective farm trade
is not directly planned by the State: the State does not lay down for the collective
farms and the collective farmers any planned targets for sale of their produce in
the collective farm markets, nor does it fix prices for the agricultural commodities
they sell. Collective farm trade is, however, under the economic influence of State
and co-operative trade. Increased turnover and retail price reductions in State
and co-operative trade bring in their wake reduced prices on the collective farm
market too.
In the collective farm markets, a free market is to a certain extent at work.
If the economic regulating influence of the State is weakened in particular
collective farm markets, speculative elements may come to life. By taking
advantage of a temporary shortage of particular commodities at a given market,
speculative elements force up market prices. But the economic influence of the
State on the unorganised market is constantly increasing. This is due to the
growth in marketed output of collective farms sold to the State as compulsory
deliveries and by voluntary sale: to the expansion of State farm production; and
to increasing quantities of foodstuffs available in the State and co-operative
shops.
 Collective farm trade is an important means of encouraging agricultural
production and of supplying towns and industrial settlements with foodstuffs. It
supplies the population with a considerable proportion of such products as
potatoes and other vegetables, meat, dairy produce, etc. Collective farm trade in
1954 amounted to about 10 per cent of total retail turnover, and to about 16
percent in the case of foodstuffs.
The collective farms and the collective farmers also sell part of their
agricultural produce on a commission basis through the consumer co-operatives.
They hand over their produce to the co-operative, receive from it the sum
obtained from the sale of this produce, less commission. This has definite
advantages for the collective farms and farmers, sparing them as it does the
outlay they would otherwise have to incur to sell their goods. The extensive
development of commission trade in agricultural produce carried out by the co-
operatives is very important. Commission trade frees the collective farmers time
for agricultural work, draws into commodity turnover an additional amount of food
products, and influences prices on the collective farm market in a downward
direction.

Prices and Costs of Circulation in State and Co-operative Trade

The undivided sway of socialised property and the predominance of State

public property in both production and commodity circulation enables the Socialist
State to plan prices in all sectors of the national economy. In the U.S.S.R. the
prices of the organised market are determined in a planned way: the State
procurement and purchase prices for the marketed output of the collective farms
and collective farmers sold by them to the State and co-operative organisations;
industrial and trade wholesale prices; State and co-operative retail prices, that is,
the final prices at which the people buy consumer goods.
As already mentioned, the law of value exercises through prices a
regulating influence on the sphere of commodity circulation. In planning prices
the Socialist State cannot but reckon with the operation of the law of value. It
takes into account the value of the commodity, the state of supply and demand,
the importance of the commodity for popular consumption, and the need to use
prices as an instrument in the redistribution of resources in the national economy.
For the majority of commodities all-Union retail prices, uniform for the whole
country, are laid down. With a view to ensuring a greater taking into account of
conditions of production and marketing, the State fixes for a number of
commodities (mostly foodstuffs) zonal retail prices, which differ from district to
district, and for a few it fixes seasonal retail prices. State procurement and
purchase prices differ from district to district, and for certain types of commodity
also from season to season.
The systematic reduction of retail prices is one of the main means of raising
the living standards of the mass of the people. The seven price reductions carried
out since 1947 have considerably increased the purchasing power and real
incomes of the working people in town and country. Price reductions are an
important means of exerting planned influence on demand and are utilised as a
means of increasing the consumption of particular products. Retail price
reductions are based on reductions in production and. trading expenses as well as
on the increasing volume of commodities made available by the State for sale to
the population.

As a result of the systematic reduction of State retail prices in the U.S.S.R., a quantity of
commodities which cost 1,000 roubles in 1947 could be purchased for 433 roubles in 1954. In
1954 retail prices of bread and of butter were three times lower than at the end of 1947, meat
nearly three times lower, and sugar 2.3 times lower. The targets laid down in the fifth Five-Year
Plan for price reductions were fulfilled ahead of time. At the same time in the U.S.A., Great Britain,
France, and the majority of other bourgeois countries prices of these commodities had
considerably increased, compared with 1947.

Commodities enter the trade network at wholesale prices. The trade

organisations sell these commodities to the population at retail prices. The
difference between the retail and the wholesale price constitutes the trade
margin. This trade margin covers the circulation costs of the trading organisations
and their net income. In this way the retail price of the trade organisations is
equal to the wholesale price plus the trade margin. The trade margin is usually
assessed by deducting a fixed percentage discount from the retail price. Trade
margins are planned by the State, and their reduction obliges trade organisations
to improve their work and reduce costs of circulation.
Costs of circulation in Soviet trade are the money expression of the
expenses of the trading undertakings in bringing commodities to the consumer. In
State and co-operative trade these costs are planned by the State. Costs of
circulation include expenditure on depreciation (premises, stocks), expenses of
storage, sorting and packaging of goods, transport, wages of trade workers, etc.
There are two forms of circulation costs in Soviet trade. In the first place,
there are costs connected with the continuation of the production process in the
sphere of circulation (transporting, storage and packaging of goods); in contrast
to capitalist trade, these costs are the major item in Soviet trade. In the second
place, there are costs connected with the commodity form of production (the
conduct of purchasing and selling operations, handling the cash accounts of the
trading enterprises, etc.). These two forms of circulation costs are made good in
different ways.
The first form of circulation costs is made good by the labour of the trade
workers connected with continuing the production process in the sphere of
circulation. This labour increases the value of the commodities, which covers
expenditure on transporting, storage, packaging and other productive functions
performed by the trade organisations. The second form of circulation costs, i.e.,
the costs connected with the commodity form of production, is made good out of
the net income created in the productive branches of the economy. The level of
wholesale industrial prices is determined in such a way that a part of the net
income of industry flows into the trade organisations.
 As a result of the advantages of the planned socialist economic system, the
level of costs of circulationthat is, circulation costs as a proportion of turnover
is a fraction of the level in the capitalist countries. Soviet trade is free from the
enormous unproductive expenditures which constitute the lions share of capitalist
costs of circulation, and which are brought about by the anarchy of production,
crises, competition, speculation, and colossal excesses in advertising. In socialist
society the flow of commodities bears a planned character, and production is
provided with a constantly growing internal market. Hence the great reduction in
the U.S.S.R. compared with bourgeois countries, of the time of circulation and of
the number of stages through which commodities pass on their way from
producer to consumer. The speed of turnover in the U.S.S.R. is considerably
higher than in the capitalist countries, which means a very great economy of
resources.
Under capitalism the accumulation of enormous stocks of surplus
commodities is a characteristic phenomenon. In contrast, the volume of
commodity stocks in socialist economy is planned, in accordance with the
requirements of trade and the need for an even and uninterrupted flow of
commodities into the trade network. This enables the formation of surplus stocks
of commodities to be averted.
As Soviet trade increases, circulation costs are still further reduced. This
reduction is in socialist society combined with improvement in the organisation
and technique of trade, increasing the quality of service to the customer and is an
important way of economising social labour. It enables supplementary resources
to be switched over to increasing material production, expanding turnover and
improving trade standards. Fundamental factors in the reduction of costs of
circulation are the mechanisation of labour processes, increased productivity, the
development of socialist emulation among the trade workers to secure improved
working of the trade network, and better utilisation of labour-power. With the help
of piece-rate and bonus systems of wages, the Soviet State gives material
incentives to trade workers to achieve higher indices of work. Important sources
for the further reduction of circulation costs are improvement in the planning of
commodity turnover and study of the popular demand, correct organisation of the
delivery of goods to the distributive network, extension of trade in ready-packed
goods, struggle against losses in trade and procurement, rationalisation of the
transport and warehousing of goods and more effective utilisation of transport. Of
essential importance for the reduction of costs of circulation is a further
shortening of the channels of movement of goods, a cutting-down of the number
of links in the trade network.

On the eve of the second world war, costs of circulation in wholesale and retail trade of the
U.S.S.R. amounted to approximately 10 per cent of the retail turnover. In 1954, in State and co-
operative trade, they amounted to about 8 per cent of retail turnover.
 The reduction of costs of circulation is inseparably bound up with the
improvement of economic accounting in trade enterprises. Economic accounting
requires that trade enterprises operate profitably; that is, have a net income
(profit) while strictly observing fixed prices. The net income of socialist trading
enterprises differs fundamentally from capitalist trading profits; it is created by
the labour of trade workers freed from exploitation (in so far as their labour is a
continuation of the process of material production in the sphere of circulation) and
also of workers of socialist production (a portion of the trade margin is covered at
the expense of the productive branches). This income is used for general State
requirements (by means of allocations to the Budget), for extending the trade
network, increasing the resources of the trading organisations and improving the
material and cultural position of the workers in Soviet trade.

Foreign Trade

Socialist economy requires a broad development of foreign trade

commodity exchange with foreign countries, which makes possible utilisation of
the advantages of international division of labour. All products of socialist
production which enter into foreign trade turnover are, as has been mentioned,
commodities. Under conditions of socialist society the development of foreign
trade is subordinated to the basic economic law and other economic laws of
socialism and is carried out in a planned way, the operation of the law of value
being taken into account. Foreign trade of a society based on socialism is used to
satisfy more fully that societys growing requirements. It serves as an additional
source of means for the development of production, use of the achievements of
peaceful technique and improvement of the supply of consumer goods to the
population.
Foreign trade under socialism is a monopoly of the State. In the U.S.S.R. all
foreign trade transactions are in the hands of a special State organisation-the
Ministry of Foreign Trade. They are subordinated to the tasks of socialist
construction, and are based on State export and import plans which are an
integral part of the national economic plan. The monopoly of foreign trade is an
essential condition for the existence and development of socialist economy.
The monopoly of foreign trade in the U.S.S.R. serves as an instrument of
planned extension of commodity turnover with foreign countries, and at the
present time performs two important functions. First, it guarantees the economic
independence of the land of socialism from the capitalist world; it protects the
national economy and internal market from penetration by foreign capital and
from the pernicious effects of economic crises and the uncertainties of the world
capitalist market. Secondly, it is directed to strengthening economic co-operation
between the U.S.S.R. and the Peoples Democracies, to the rendering by the
Soviet Union of aid for the economic development of these countries. This new
function of the monopoly of foreign trade has arisen with the formation of the
world market of countries in the democratic camp. In place of the competitive
struggle these countries build their commercial relations on fraternal mutual
assistance.
The monopoly of foreign trade has reliably protected the economy of the
U.S.S.R. from the economic aggression of the imperialist countries. It played an
important part in the industrialisation of the Soviet national economy, ensuring
the supply to industrial establishments of a considerable quantity of imported
machinery. Since the conversion of the U.S.S.R. into an industrial Power, the
structure of its foreign trade has substantially changed: industrial goods have
begun to predominate in Soviet exports, whereas in the exports of pre-
revolutionary Russia agricultural raw materials predominated. During the fourth
and fifth Five-Year Plans the U.S.S.R. has still further increased its exports of
heavy industrial products. The export of equipment from the U.S.S.R. was in 1954
16.5 times (in comparable prices) what it had been in 1938.
In its foreign trade the Soviet Union consistently adheres to the principles of
respect for the national sovereignty of all countries, and the complete equality
and mutual advantage of both parties. Basing itself on the possibility of peaceful
co-existence of the two systemsthe socialist and the capitalistthe Soviet State
regards the extension of foreign trade relations as one of the most important
ways of drawing the peoples together, reducing international tension and
strengthening the cause of peace.
As a result of the tremendous growth of socialist production in the U.S.S.R.,
and the rise of the new world market of the democratic camp, the foreign trade of
the Soviet Union is steadily increasing from year to year. Its trade with the
countries of the democratic camp is growing rapidly, and accounts for the major
share of the Soviet Unions total foreign trade. In 1954 trade with the capitalist
countries accounted for one-fifth, and trade with the countries of the democratic
camp for four-fifths, of the U.S.S.R.s total foreign trade.

The Soviet Union steadfastly steers a course of developing businesslike economic relations
with the capitalist countries on mutually advantageous conditions. However, the policy of
discrimination pursued under the pressure of aggressive circles in the U.S.A. is hindering the
development of trade between the U.S.S.R. and the capitalist countries. This policy is expressed in
the rejection of trade relations with the U.S.S.R. and the Peoples Democracies, and compelling all
dependent bourgeois countries to adhere to this policy. This policy seriously injures the interests of
the States which pursue it and is consequently meeting with failure. In the course of 1953-4, a
tendency to extend their trade relations with the Soviet Union and the Peoples Democracies
appeared in a number of bourgeois countries.
In 1953 the U.S.S.R. traded with 51 foreign States, while trade with 25 of these countries
was based on trade agreements of one years or several years duration. The U.S.S.R.s foreign
trade turnover in 1953 reached 23 milliard roubles, exceeding the pre-war level (in comparable
prices) almost 4-fold. Alongside the U.S.S.R.s increasing trade turnover with the countries of the
democratic camp, trade increased considerably with a number of countries in Western Europe and
the Near and Middle East. At the same time, there was a further enlargement of the list of
exported and imported commodities. In 1954 the Soviet Union continued to extend its economic
ties with foreign countries. The U.S.S.R. had trade relations with 56 foreign States.
 BRIEF CONCLUSIONS
(1) The socialist mode of production has its own form of commodity
exchange in the form of trade by socialist enterprises with the aim of satisfying
the growing demands of the working people. Trade under socialism is conducted
in a planned way, linking growing socialist production with increasing consumption
by the people; linking town and country, the various sectors of the national
economy, and the districts of the country.
(2) There are two markets in the U.S.S.R.: the organised market in the
form of State and co-operative trade, and the unorganised market which involves
collective farm trade. The organised market is directly planned by the State. It
plays the decisive role in trade turnover. The unorganised market is not directly
planned, but is regulated by the State through economic channels.
(3) Prices in State and co-operative trade are determined in a planned way.
Prices in the collective farm markets are formed under the influence of supply and
demand, and are subject to the regulating influence of State prices. The Soviet
State effects the reduction of retail prices. This is bringing about an increase in
the purchasing power of the workers employees and peasants, and the growth of
consumption by the people.
(4) Soviet trade is based on the system of economic accounting and is
considerably more economical than capitalist trade, being freed from the
enormous unproductive expenses which are engendered under capitalism by
private property, competition and anarchy of production.
(5) In a socialist economy, foreign trade is a State monopoly and serves the
ends of strengthening and further developing that economy through making use
of the advantages of the international division of labour. The monopoly of foreign
trade is a means of planned extension of the foreign trade turnover of the
U.S.S.R. with all foreign countries regardless of their social system, on the basis
of complete equality and mutual advantage. It ensures the protection of the
socialist economy against penetration by foreign capital and is directed to
strengthening economic collaboration between the Soviet Union and the other
countries of the socialist camp.
 CHAPTER XXXVII

THE NATIONAL INCOME OF SOCIALIST SOCIETY

The Gross Social Product and the National Income

in Socialist Society

The gross social product in socialist society is the total material wealth (both
means of production and consumer goods) produced in society over a particular
period, such as a year.
It is created by the labour of workers in branches of material production:
industry, agriculture, building, transport when serving production, and likewise by
the labour of trade workers when carrying on operations which continue the
production process in the sphere of circulation (such as storing, finishing,
transporting, packing goods, etc.). In addition to manual workers, brain workers
(scientists, engineers, etc.) employed in branches of material production also
participate directly in the creation of material wealth.
In the non-productive branches no gross social product is formed. But
although workers employed in the non-productive sphere (State administration,
culture, welfare and health services) do not produce material wealth, their labour
is necessary to socialist society and for material production: it is socially-useful
labour. The Socialist State exercises the functions, vitally necessary to society, of
organiser of the national economy and of provider of culture and education. Once
socialism has been established, the part played by science in improving
technology and increasing production grows immeasurably. Labour expended on
training skilled personnel for production is of great importance. Science, education
and the arts satisfy the cultural needs of the working people. The welfare and
health services provide conditions for fruitful labour by the workers in socialist
society. There is thus a mutual exchange of activities in socialist society between
workers in material production and those in the non-productive sphere.
Production, the sphere of providing material goods, is the basis of the
socialist system, as it is of all others. It is therefore of very great importance to
the national economy to increase the share of labour performed by workers
employed in material production, by reducing the share performed by workers
employed in various non-productive branches. Thus, swollen establishments in
State administration, and superfluous administrative and managerial personnel in
State enterprises and collective farms, a high level of costs of circulation, all
divert labour, especially skilled labour, from the sphere of material production.
This hinders the increasing of the national income and inflicts damage on the
national economy.
The growth of social wealth and the creation of the abundance of products
needed for the building of communist society are promoted by consistently
increasing the proportion of labour engaged in the material production sphere, by
simplifying and cheapening administrative machinery in every possible way, and
by reducing costs of circulation.
Lenin considered that a most important task of Soviet power was

consistently to reduce the size and cost of the Soviet apparatus by

cutting it, by organising it better, by abolishing red tape and bureaucracy
and by reducing non-productive expenses. (Lenin, Works, 4th Russian
edition, Vol. XXXIII, p. 406.)

In the process of production a part of the gross social product is used to

replace means of production which have been consumed. This part embodies the
outlays of past labour, transferred to the product from the means of production
which have been used up. After this has been deducted, the remaining part of the
gross social product constitutes the national income of society.
The national income in socialist society is that part of the gross social
product created by the workers in socialist production which remains in a
particular period after used-up means of production have been replaced; it
embodies the new labour expended.
The national income in a physical form consists of the total means of
consumption produced in the country and used to satisfy the needs of society,
together with that part of the output of means of production which is used to
extend socialist production in town and country.
 In so far as commodity production exists in socialist economy, the national
income as a whole and all its constituent parts, whatever physical form they may
take, appear also as values, in money form. In view of this, both the total mass of
consumer goods and that part of the national income which consists of means of
production are expressed and measured by means of money.

Owing to price changes the national income is calculated in comparable (fixed or constant)
prices, using the prices of a particular year, as well as in current prices. Calculation of the national
income in comparable prices makes it possible to establish the real changes in the volume of
national income over a period of years.

Under capitalism the national income is produced by the labour of workers

subjected to exploitation, and is at the disposal of capitalists and landlords, who
retain the lions share for themselves in the shape of income not earned by
labour; a smaller part passes to the working people. In socialist society the
national income is created by the labour of workers free from exploitation, and
belongs in its entirety to the working people. Socialism precludes the existence of
incomes not earned by labour.
The national income of socialist society consists of the product of labour for
itself and the product for society. The product of labour for itself is distributed
according to work done among the workers in material production who create it,
and it is used to satisfy the personal needs of the workers in socialist production
and their families. The product for society created by the workers in material
production is the net income of socialist society, and is used to extend production,
to develop cultural and health facilities, to cover expenditure on State
administration, etc.

The Continuous Growth of the National Income in Socialist

Society

In socialist society the national income grows continuously and rapidly, as a

result of the uninterrupted growth of socialist production, which expands in
conformity with the requirements of the basic economic law of socialism. The
national income grows considerably more rapidly under socialism than in capitalist
society.

The national income of the U.S.S.R., in comparable prices, was 6.1 times the 1913 level in
1940, 10 times in 1950, and about 15 times in 1954.
Between 1929 and 1954 the national income of the U.S.A., in comparable prices, did not
even double itself. The U.S.S.R. national income, also measured in comparable prices, rose over
the same period 11 times in spite of the tremendous damage done to the economy by the fascist
invaders during the war years.

The rapid increase in the national income in socialist society is due to two
factors: (1) the growth in the productivity of social labour, and (2) the increase in
the number of workers in production. The bulk of the increase results in socialist
society from the growth in labour productivity. For example, during the fourth
Five-Year Plan 20 per cent of the increase in the national income was a result of
the increase in the number of workers in production, and 80 per cent resulted
from the growth in labour productivity.
The labour productivity of workers in socialist production, as already
mentioned, increases rapidly because up-to-date machinery is introduced in all
branches of production (including agriculture), and because the organisation of
labour and production is improved, the skill of the workers, collective farmers and
intelligentsia1 grows, the material and cultural standards of the working people
are. regularly raised, and socialist emulation develops.
Increases in the productivity of social labour require the planned and rational use
of materials and labour, and, in particular, economical use of the means of
production. The latter makes it possible to produce more with the same amount
of raw material and equipment, to increase the size of the social product, and,
consequently, of that part of it which constitutes the national income.
Increasing the number of workers employed in material production is an
important factor in the growth of the national income. In socialist society, unlike
capitalist society, exploiting classes and their numerous hangers-on do not exist,
unemployment is absent, too much manpower is not diverted into the sphere of
circulation, and so on. As a result, a considerably greater part of the able-bodied
adult population is employed in branches of material production, which create the
gross social product. At the same time the number of workers employed in
science, education, the arts, and the health services steadily increases. In
socialist society all the achievements of material and spiritual culture belong to
the people; under capitalism they are mainly utilised by the exploiting classes.

In the U.S.S.R. unemployment has long been a thing of the past, while in the U.S.A. the
number of unemployed in 1950-4 amounted to an average of about 10 per cent of the able-bodied
population, in terms of the number of man-years of employment and unemployment per annum.
In the U.S.S.R. more than half of the able-bodied population working in non-productive
branches are employed in the cultural and welfare services; in the U.S.A. one-seventh of the
workers in non-productive branches is employed in these services.

In socialist society the growth of the national income is a most important

index of the improvement of the well-being of the population, as it is
accompanied by an increase in the incomes of workers, peasants and professional
workers. Under capitalism the growth of national income cannot provide an index
to the growth of the well-being of the population, as a constantly increasing part
of the national income is appropriated by the capitalists and big landowners, and
the share of the working people in the national income is progressively falling.
In the U.S.S.R. the volume of the national income, in comparable prices,
1
Roughly corresponding to those known as professional workers in Great Britain, ranging (say)
from village teachers to stage artistes. Editor, English edition.
was three times as great in 1954 as in 1945. In the U.S.A. the volume of the
national income increased in comparable prices by only 12 per cent over the same
period.

Distribution of the National Income

The national income created in the process of socialist production is

ultimately distributed and utilised for consumption and socialist accumulation. In
contrast to capitalism, the national income of socialist society is distributed

not with a view to enriching the exploiting classes and their

numerous parasitical hangers-on, but with a view to ensuring the systematic
improvement of the material conditions of the workers and peasants and
the expansion of socialist production in town and country. (Stalin, Political
Report of the Central Committee to the XVI Congress of the C.P.S.U. (B),
Works, English edition, vol. XII, p. 331.)

The national income is distributed in socialist society in the following

manner. In the first place the national income takes the various forms of income
in those branches of material production where it is created: (a) in the State
sector, and (b) in the co-operative collective farm sector of the economy.
National income created in the State sector of the economy may be divided
into two main parts. The first part is the product created by the workers in
material production for themselves, and takes the form of the wages of manual
and clerical workers in State productive enterprises. The other part of the national
income created in the State productive sector is the product for society, or net
income. This assumes two main forms: (1) the net income of State enterprises
(the profit of enterprises, as it is called); (2) the centralised net income of the
State (such as the so-called turnover tax, deductions from profits, and charges
calculated on the basis of the wages bill for social insurance purposes).
National income created in the collective farms socially-owned sector is the
property of the collective farms, and also consists of two main parts: the product
for themselves and the product for society. The product for themselves, created
by the collective farmers work in the socially-owned sector of the collective
farms, takes the form of incomes in kind and in money, distributed among the
collective farmers according to the work-days earned. The collective farmers also
receive income in money and kind from work in their personal house-hold plots.
The product for society created by the collective farmers in the socialised sector is
the net income of the collective farm. Part of this is used to develop collective
farm production and to meet the general needs of the farm, and the material and
cultural requirements of the collective farmers. The other part of the net income
created in the socialised sector of the collective farms is transformed through the
price mechanism and the income tax into centralised net income of the State. In
this way collective farms contribute to public expenditure by the State on the
extension of production in town and country, on the development of culture, on
the strengthening of the countrys defence, and so on.

The total centralised net income of the State therefore embodies not only
part of the labour for society expended by the working class but also part of the
labour for society expended by the collective farm peasantry.
The product for themselves created by the labour of workers in producers
co-operatives takes the form of their wages, while the product for society takes
the form of the net income of these producers co-operative enterprises. Part of
this is used to extend production in the co-operatives and to meet the needs of
their members. The remainder is transformed into centralised net income of the
State by means of the turnover tax and income tax.
Thus in socialist society there takes place the formation of different
categories of income, received directly in the sphere of material production. Part
of the national income, the product for themselves created by workers in
production, is distributed according to work done, and takes the form of the
wages of manual and clerical workers engaged in production, the collective
farmers personal incomes and producers co-operative workers wages. The other
part of the national income, the product created for society by the workers in
production, or the net income of society, takes the following forms: net income of
State enterprises, net income of collective farms and co-operative enterprises,
and centralised net income of the State. However, as stated above, some part of
the net income of enterprises is transformed into the centralised net income of
the State in the course of the distribution of the income.
In the course of the further distribution of the national income, mainly
through the State Budget, part of it is transformed into the incomes of non-
productive branches, and of the workers employed in them.
In socialist society the State expends large sums on meeting a number of
social needssuch as the education and health services, the maintenance of
State administration, and increasing the countrys defensive capacity. Socialist
society cannot advance unless it accumulates year by year and extends social
production. It could not develop the productive forces or satisfy the growing
needs of the population without this. Hence follows the economic necessity of
concentrating in the hands of the State a considerable part of the national
income, in the shape of a cash fund to be spent on the purposes that have been
mentioned. This fund is formed almost entirely out of the centralised net income
of the State; only a very small part of it consists of receipts from the population
(taxes and loans). The Budget plays the main part in concentrating resources in
the hands of the State and in apportioning them for social needs.
Part of the net income of society is expended by the State on social and
cultural services and administration, and takes the form of the wages of scientific,
educational and health workers, and of workers in State administration and the
armed forces. A considerable part of the cultural and welfare services (education
and health) is supplied to the population in town and country without payment, at
State expense. Part of the cultural and welfare institutions and enterprises
reimburse themselves for their expenditure out of payments by the population for
the services rendered. The State pays pensions, allowances and stipends, and
grants various privileges, holidays with pay, etc. This increases the real wages of
manual and clerical workers and the real incomes of the peasantry.
Ultimately the whole national income of socialist society may be divided into
the consumption fund and the accumulation fund.
The consumption fund is that part of the national income which is used to
satisfy the growing material and cultural requirements of the workers, peasants
and intelligentsia. It is formed primarily from the product created by the labour of
workers in production for themselves. A further substantial part of the
consumption fund is formed by the State, the collective farms and the co-
operatives out of the product for society, expended on social and cultural services.
Increases in the consumption fund are the conditions necessary for the growth in
the incomes of the working people.
In socialist society the incomes of workers, peasants and intelligentsia grow
continuously and rapidly for the following reasons:
(1) the uninterrupted extension of production makes it possible to employ
additional workers each year, drawn from the natural growth of population, with a
resulting increase of the gross income of the working people;
(2) the skill and productivity of labour, the average earnings of manual and
clerical workers, and the average income of collective farmers, increase regularly;
(3) State Budget allocations for culture, education, and health are
increasing;
(4) funds received by the working people in the shape of social insurance
and social security payments and so on are increasing. Moreover, the real
incomes of the working people in socialist society increase more rapidly than their
nominal (money) incomes, because the State pursues a policy of reducing the
prices of consumer goods.
The rapid and continuous growth of production is the source of the
continuous improvement of the material and cultural standard of living of the
working people. To achieve this growth in production, part of the national income
has to be transferred to the accumulation fund.
The accumulation fund is the part of the national income of socialist society
which is used to extend and improve socialist production in town and country, to
increase non-productive funds for cultural and welfare purposes, including the
housing fund, and to form reserves. Thus the accumulation fund provides material
conditions for the growth and improvement of socialist production on the basis of
higher technique, and for further increases in the well-being of the people.
The working people of the U.S.S.R. receive about three quarters of the
national income for the satisfaction of their personal material and cultural needs,
out of both the product for themselves and the product for society. The remainder
of the national income is used for socialist accumulation in town and country.
 BRIEF CONCLUSIONS
(1) The national income of socialist society is that part of the gross social
product which embodies the newly expended labour of workers, peasants, and
intelligentsia employed in production. In contrast to capitalism, all the national
income under socialism belongs to the working people.
(2) The national income grows considerably more rapidly in socialist society
than under capitalism, because socialism is free from the anarchy in production,
waste, and economic crises inherent in capitalism, and ensures that materials and
labour are used in a planned and rational way. The growth of the national income
is brought about, firstly, by increasing the productivity of social labour, and,
secondly, by increasing the number of workers employed in the branches of
material production.
(3) The national income is distributed in conformity with the requirements
of the basic economic law of socialism, and this leads to a continuous increase in
the incomes of the working class, the peasantry, and the intelligentsia. One of the
main factors in the increase of the incomes of the working people is the outlays
by the State, the collective farms, the co-operatives, and social organisations on
the social and cultural needs of the population. The growth of the national income
in socialist society is one of the main indices of the increased well-being of the
working people.
(4) The national income of socialist society is divided into the consumption
fund, used to satisfy the continuously growing material and cultural needs of the
people, and the accumulation fund, providing the material conditions for the rapid
growth and improvement of socialist production, on the basis of higher technique.
 CHAPTER XXXVIII

STATE BUDGET, CREDIT, AND CURRENCY

CIRCULATION IN SOCIALIST SOCIETY

The Finance of Socialist Society

Owing to the existence of commodity production and commodity circulation

in socialist economy, the output of all socialist enterprises is expressed in money
(value) terms as well as in physical terms. Both State and co-operative collective
farm enterprises receive money for their output, and use it to make good
production outlays (depreciation, acquiring raw and other materials and fuel,
payment of labour, etc.) and to extend production. Thus definite money funds are
formed and expended in socialist enterprises. This is the financial side of their
economic activity.
Part of the money received by enterprises is transferred into a general State
fund, which is used centrally for public needs and for national economic and
cultural development. The essential function of the State Budget is to form and
distribute this centralised fund of monetary resources. Monetary funds are formed
for the purposes of social insurance and insurance of persons and property.
The money of enterprises which is temporarily not in use is concentrated
and used centrally through credit.
All these forms under which monetary funds are constituted, regardless of
their special features and differences between them, are organically connected
together, making up a single system of finance. The finance of socialist society is
a system of economic relationships expressed in the planned formation and
distribution of money funds in the economy in the interests of securing a
continuous growth of production, a steady rise in the material and cultural
standards of the people and a strengthening of the power of socialist society. The
finance of socialist society includes the State Budget, the finances of State
enterprises, collective farms, producer and consumer co-operatives, State social
insurance, State property and personal insurance, and various forms of credit.
The material basis of the financial system is socialist production; and the
financial system rests on the growth of industry and agriculture and the extension
of trade. At the same time, finance exercises an active influence on the
development of production and commodity circulation.
With the help of the financial system the gross social product is distributed
in a money form among the sectors of socialist productionState and co-
operative collective farmamong branches and enterprises, between different
parts of the country, and between society as a whole and its members. The
financial system has to ensure the most rational use of all the resources of
socialist economy, to strengthen the regime of economy, economic accounting
and financial discipline in the national economy and increase the profitability of
production. By means of finance, the Socialist State enforces rouble control over
the whole economic activity of enterprises and branches of the economy.

The Budget of the Socialist State

The State Budget occupies a leading place in the financial system of

socialism. In socialist society the State Budget is the main form in which the
centralised fund of monetary resources is formed and used in a planned way to
extend socialist production and satisfy the growing needs of society as a whole. A
considerable part of the national income is distributed through the State Budget.
The Budget includes revenue (monetary resources made available for centralised
disposal by the State) and expenditure (allocation of these resources for the
needs of society). The plan for budgetary revenue and expenditure is the basic
financial plan of socialist society.
The State Budget under socialism differs radically in its essential character
from the State. Budget under capitalism, which is an instrument for additional
exploitation of the working masses and enrichment of the monopolies, and is used
for the purpose of militarising the economy and conducting an arms drive. In
harmony with the basic economic law of socialism, the Budget in socialist society
functions as a very important factor in the development of peaceful economy and
the growth of the productive forces for the purpose of satisfying the growing
material and cultural demands of society as a whole. The incomes which the
exploiters used to squeeze out of the labour of the people now remain in the
hands of the working people and are used partly for the expansion of production
and the enlistment of new detachments of working people in production, and
partly for directly increasing the incomes of the workers and peasants. (J.V.
Stalin, Report to the Seventeenth Party Congress, Works, vol. XIII, P.34I.)
Thanks to the predominance of social ownership of the means of
production, the State Budget under socialism is closely connected with the whole
national economy, and is an instrument for the planned development of socialist
economy and rational use of productive resources in all branches of the national
economy. Reflecting the plan for the national economy, the Budget at the same
time exercises an all-round influence upon its fulfilment. In the hands of the
Socialist State it serves as a necessary means of ensuring observance of those
proportions in the national economy demanded by the law of planned
development of the national economy. By means of the Budget the Socialist State
mobilises the monetary resources of the national economy and makes these
resources available to enterprises and branches in accordance with their planned
tasks and how they are fulfilling them; it carries out a check on the state of the
financial affairs of the branches and enterprises, On how far they are observing a
regime of economy. The State Budget is based on the development of the whole
of the socialist national economy. First, it is integrally connected with the finances,
the revenues and expenditures of State enterprises. Most of the net income of
society created in these enterprises passes to the State Budget. A considerable
part of capital construction in all branches of the national economy, and of the
increase in the fixed and circulating funds of State enterprise, is paid for out of
the State Budget. The connections between the State Budget and the collective
farms are of great importance: part of the net income of collective farms is trans-
ferred to the Budget and used for public needs. The State, through the Budget,
gives financial assistance to the collective farm sector in developing production,
and maintains schools, hospitals and other social and cultural institutions serving
the collective farmers.
The main source of the revenue side of the State Budget of the U.S.S.R. is
the net income of society, or more exactly that part of it which is the centralised
net income of the State. In 1954, 86 per cent of all budgetary revenue came from
the net income of society (receipts from socialist economy).
The centralised net income of the State enters the State Budget in the form
of (i) turnover tax, as it is called, (ii) deductions from the net income (profits) of
State enterprises, (iii) charges calculated on the basis of the wages bill for social
insurance purposes, (iv) income tax from collective farms and other co-operative
enterprises, and so on. The first two sources constitute the bulk of the total
revenues in the State Budget of the U.S.S.R.
Resources from the population, received as taxes and loans, are also one of
the sources of State budgetary revenue. Taxes on the population are a form in
which part of the personal incomes of members of society is compulsorily
transferred to the Budget. In socialist society, unlike capitalism, taxes are a very
small part of the income of working people, and are used for public needs. In
1954 they amounted to only 8.3 per cent of the total revenue of the U.S.S.R.
State Budget. Payments and allowances of all kinds to the population out of the
Budget amount to several times more than the taxes collected from the
population.

Part of the working people of the U.S.S.R. are completely freed from paying taxes, and the
rates of taxation depend on the size of the income. In 1954 the agricultural tax on the peasantry
amounted to less than 1 per cent of the revenue of the State budget; and in that year the total
taxation on the rural population was reduced to less than 40 per cent of the level of 1952.

State loans in socialist society are a form in which the State attracts
resources from the population for the needs of society as a whole for a definite
period. When working people subscribe to loans, they voluntarily transfer part of
their personal incomes to the State for its temporary use. At the same time loans
are a form of savings for the working people, and provide them with income in
the shape of cash prizes and interest. In the State Budget of the U.S.S.R.
between 1951 and 1954, an average of more than 5 per cent of all revenue came
from this source.
The expenditure side of the Budget consists of State financing, i.e., non-
returnable expenditure, for the following main purposes: (1) development of the
national economy; (2) social and cultural measures; (3) maintaining State
administration; (4) ensuring the defence capacity of the State. The bulk of the
resources of the State Budget of the U.S.S.R. is used to finance the economy and
social and cultural measures; more than two-thirds of all the State budgetary
expenditure was allocated to these purposes in the post-war period.
Financing out of the Budget is one of the most important factors in
developing the economy of the Soviet Union. In 1946-54 State budgetary
expenditure on the national economy amounted to 1,462 milliard roubles.
Budgetary resources are used to secure the preferential growth of production of
means of production, to develop heavy industry, to improve agriculture and to
extend the production of consumer goods. The Socialist State spends tremendous
budgetary sums annually on capital investments in all branches of the economy.
The U.S.S.R. State Budget finances extensive capital construction of new works,
mines, factories, power-stations, State farms, M.T.S., railways, municipal
enterprises, housing, schools, hospitals, sanatoria, and so on. Part of the Budget
resources is used to increase the circulating resources of existing enterprises,
supplementing the amount remaining for this purpose from the net amount of the
enterprises themselves. The State material reserves needed for the planned
conduct of the economy and for the countrys defence needs are formed out of
budgetary funds.
A considerable proportion of the budgetary funds is expended on social and
cultural services, which are an important source of steady improvement in the
material and cultural standards of living of the people. With this object in view,
Budget allocations are made for scientific development, education, health,
physical culture, pensions and allowances, and so on.
In socialist society part of the budgetary resources is expended on
maintaining the machinery of State, which is responsible for activities of many
kinds in the fields of economic and cultural development. In order to put into
effect the regime of economy, in the interests of an extension of production and
the satisfaction of the growing needs of the people, the cost of administration and
management has to be reduced in every possible way. In view of this, the
Socialist State systematically carries out a policy of rationalising the
administrative and managerial machinery and cutting down expenditure on
maintaining it.
Part of the budgetary resources are spent on strengthening the countrys
defence. In the Soviet Union, which follows a policy of peace, expenditure on the
armed forces constitutes a comparatively small share of the Budget.

In the first five post-war years alone (1946-50), the Soviet State expended 524.5 milliard
roubles out of the Budget on social and cultural services; in four years of the fifth Five-Year Plan
(1951-4) it spent 512.5 milliard roubles.
In 1932 expenditure on maintaining State administrative bodies amounted to 4.2 per cent
of budgetary resources in the U.S.S.R., in 1940 to 3.9 per cent, and in 1955 to 2.2 per cent. In the
1955 Budget 19.9 per cent of total expenditure was allotted to national defence, whereas in the
U.S,A. direct expenditure for military purposes in 1954-5 alone amounted to two-thirds,
approximately, of the entire Budget.

The size of the State Budget in socialist society steadily increases on the
basis of the continuous development of the national economy. The rapid and
uninterrupted growth of the national income in socialist society makes it possible
also to increase continuously that part of it which is transferred to the State
Budget. Thus, the revenue of the U.S.S.R. State Budget in 1954 was more than
treble the pre-war 1940 level. A distinguishing feature of the State Budget of the
U.S.S.R. is its stability. Budgets in capitalist countries are in deficit as a rule, but
the U.S.S.R. Budget is not merely balancedit always has a considerable surplus.
Execution of the Budget directly depends on actual achievements in output,
sale of commodities, reduction in outlays on production and circulation, and
growth of accumulation; and it therefore depends on the extent to which reserves
within production are utilised and economic accounting is applied. At the same
time the Budget contributes to the bringing to light and putting to use of these
reserves and to increasing the profitability of production.
During the actual carrying out of the Budget, the financial institutions are
required to exercise rouble control of the fulfilment of economic plans and of the
observance of the regime of economy and financial discipline. This control is
carried out both in fixing the amounts to be deducted into the Budget, and in
checking to see that obligations to the Budget have been fulfilled. The financial
institutions analyse the economic activity of enterprises and organisations, and
disclose their faults; they check how far State resources have been conserved and
correctly spent, and the efficiency of book-keeping and financial accounting in
enterprises; and they struggle against waste of resources. To this end budgetary
payments to economic organisations are frequently made dependent on the
quality of their work.

The U.S.S.R. State Budget includes: (1) the All-Union Budget and (2) the State Budgets of
the Union Republics, divided in their turn into (a) Republican and (b) Local Budgets.1 The leading
part in the whole budgetary system is played by the All-Union Budget, which handles the bulk of
budgetary resources. This budgetary structure makes it possible to put into practice the principles
of democratic centralism and a correct nationality policy in a multi-national Socialist State. The
State Budget of the U.S.S.R. covers a period of a year, and is approved by the Supreme Soviet of
the U.S.S.R. as a law. Budgets of Union Republics are approved by the Supreme Soviets of these
Republics.

A considerable part of the centralised distribution of monetary resources is

carried out through the machinery of State social insurance and the State
property and personal insurance system.
State social insurance is a means of providing material security for manual
and clerical workers and members of their families if they lose their capacity to
work, temporarily or permanently. It includes free medical aid, the maintenance
of rest homes, sanatoria, hospitals, and so on; Social insurance of manual and
clerical workers in the U.S.S.R. is administered by trade union bodies out of State
funds or the funds of the appropriate co-operative organisations. The source of
social insurance funds is the net income of society, received in the form of
1
A Union Republic is one of the sixteen constituent States of the Union of Soviet Socialist
Republics. The local Budgets mentioned here are those of the regional (or territory), district (or
area), town and village Soviets.Editor, English edition.
contributions paid by enterprises, organisations, and institutions, calculated as a
definite percentage of the total sum paid in wages to manual and clerical
workers.2 Both the revenue and the expenditure side of State social insurance
funds are included in the State Budget and expended by the trade unions.
Expenditure on social insurance grows continuously and rapidly. In 1954 it stood
at more than 2.9 times the 1940 level.
State property and personal insurance is a means of reimbursing and
preventing losses by citizens, enterprises, and organisations, from misfortunes
and accidents. It is a State monopoly in the U.S.S.R., and is administered by
insurance organs mainly for individual citizens and for collective farms and co-
operative bodies. The main source of its funds is insurance payments made by the
population and by enterprises and organisations.

Credit in Socialist Economy

Credit is one of the economic tools of socialist society. The need for credit
under socialism arises from the existence of commodity production and money
economy, and the development of the function of money as a means of payment.
Socialist economy presupposes planned organisation of the entire payments
turnover of the country with an extensive development of credit. Of, enormous
importance, moreover, is the rational utilisation on the scale of the national
economy as a whole of temporarily liberated monetary resources. Monetary
resources accumulate in the economy which are temporarily not in use, and on
the other hand socialist enterprises temporarily need supplementary resources.
The primary cause of this is that, in the process of rotation of the resources
of socialist enterprises, the dates at which money is received from the sale of
output do not coincide with the dates at which outlays in money have to be made
for the requirements of production. Part of the resources of enterprises is always
held in money form but it is spent at definite intervals. As output is sold, money
accumulates, earmarked for the purchase of raw materials and fuel, stocks of
which are renewed periodically. As output is sold, the wage fund also steadily
accumulates, but wages are paid out usually twice a month. The depreciation fund
systematically accumulates in a monetary form, but is spent on new machines
and equipment, and on the erection and capital repair of buildings only at definite
intervals. The net income of enterprises is used for capital construction after
sufficient has accumulated for this purpose. In this way State enterprises have
money at their disposal which is temporarily not in use. Collective farms also have
money which is temporarily not in use in the form of (a) deductions made from
cash income to the indivisible funds intended to be spent in the future, and (b)
cash incomes which have not yet been distributed to collective farmers, and so
on. During the execution of the Budget, money which is temporarily not in use

2
These contributions are not deducted from the wages bill; the latter is merely a basis of
calculation.Editor, English edition.
appears in the form of surpluses of revenue over expenditure, of balances in hand
in the current accounts of institutions financed out of the Budget, and of special
Budget resources. The growth in the incomes of working people is also
accompanied by the formation of increasingly large unspent sums of money in
their hands. At the same time socialist enterprises and economic organisations
periodically need money temporarily, e.g., for seasonal outlays, for purchase of
raw materials, and so on. Thus an economic need for credit arises. Credit is
closely connected with the rotation of the resources of socialist enterprises and is
one of the means by which this is effected.
Credit in socialist economy is the form in which monetary resources which
are temporarily not in use are gathered by the State and used in a planned way
to meet the needs of the national economy, on condition of being returnable. In
socialist economy, unlike capitalism, loan capital does not exist: by far the greater
part of the money entering the credit system is socially-owned property; the rest
is the personal property of the working people. These resources are made use of
to serve socialist enterprises and the mass of working people. Credit in socialist
conditions is supplied in a planned way. In accordance with the requirements of
socialist national economy the State lays down credit plans in which the amount
of credit, its sources and allocation are indicated, The credit plan reflects the
national economic plan and has the task of contributing to its fulfilment.
In socialist society, money which is temporarily not in use is accumulated in
State credit institutions: banks and savings banks. Thus enterprises operating on
the basis of economic accounting have to keep their cash resources on clearing
accounts In the State Bank. Cash belonging to collective farms is deposited in
current accounts in the State Bank or in savings banks. Money accumulated by
socialist enterprises is also concentrated in special banks (for example, deductions
by State enterprises for new construction, indivisible funds in collective farms,
etc.). Unspent Budget resources are also kept with the State Bank, as are the
cash resources of State institutions, trade unions, insurance, and so on. Credit is
also a channel through which the free monetary resources of the population are
made available, by inducing them to keep accounts in the State savings banks.
Credit given by the banks is divided into long-term and short-term: short-
term credit serves the movement of the circulating resources of State enterprises,
collective farms, and other co-operative organisations; long-term credit mainly
serves the sphere of capital construction. The State assists collective farms and
co-operative unions with long-term credits (for economic installations); and it
assists working people with credits (for individual housing construction, for the
purchase of cows by collective farmers, and so on). Sums which they themselves
accumulate are also a source of long-term credits to collective farms and co-
operative bodies. State enterprises receive resources for capital investment from
the State in the form of non-repayable Budget allocations; they also finance
capital investments partly from their own resources (the depreciation fund and
their net income).
In conformity with the plan, enterprises and economic bodies receive .loans
in the form of direct bank credits. All enterprises must obtain their loans only
from a bank. In the U.S.S.R. there is no commercial credit (the supplying of
goods by one enterprise to another on credit). If commercial credit were to be
allowed, this would lead to a weakening in control by the banks over the
economic activity of enterprises and make possible planless and uncontrolled
redistribution of resources among enterprises. The bank grants loans to an
enterprise for definite economic measures, such as the seasonal purchase of
raw material and the formation of temporary stocks of finished or semi-finished
output. This form of credit ensures the direct connection between bank credit and
the process of production and circulation.
Direct short-term credits are made by the bank to enterprises and economic
organisations on the following main principles: (1) loans must be returned at a
definite date; (2) loans are for a stated purpose; (3) bank loans must be secured
by material values. The fact that loans are returnable, and at a definite date,
promotes a quicker turnover of the resources of economic organisations and
enterprises, and facilitates rouble control by the bank. The requirement that loans
must be secured by definite material values enables the bank to supervise the
proper use of the credit for the stated purpose, and links credit with the
movement of material resources.
The banks pay a definite interest on deposits and charge a somewhat higher
interest on loans. Interest in socialist economy is that part of the net income of
the enterprise which is paid by them to the bank for the temporary use of money
on loan. Under capitalism the level of interest is formed spontaneously, as a result
of competition. As against this, in socialist economy rates of interest are fixed by
the State in accordance with a plan. The State in doing so starts from the need to
give enterprises and organisations a material incentive both to keep their free
resources in the banks, and to use their own and borrowed money as efficiently
as possible.
Credit under socialism is connected with rational organisation of the
resources of enterprises and of settlements between them. In socialist society
wide use is made of book-keeping transactions without transfer of cash.
Settlements between enterprises and organisations are made through the banks
by the transfer of money from the account of one enterprise or organisation to
that of another on the instructions of the owners of the accounts. Planned
centralisation of accounting and credit functions makes it possible in the U.S.S.R.
to use internal clearing accounts (i.e., the cancellation of the mutual claims of
economic bodies) on a vast scale, unknown under capitalism. In the U.S.S.R.
payments in cash are made between enterprises only for small amounts. Book-
keeping settlements replace cash in economic transactions, and thus reduce the
amount of money needed in the national economy for purposes of circulation.
Book-keeping settlements speed up the turnover of money and of the whole social
product, and promote the strengthening of the currency system.
Credit given to State enterprises is of great importance in the organisation
of production. A considerable part of the working resources of enterprises is in the
form of credit. It promotes the growth of socialist production, rational utilisation
and acceleration of the rate of turnover of resources and reduction in the cost of
production and increase in the profitability of enterprises.
 Socialist credit is a powerful instrument of rouble control by the State of the
work of enterprises and economic organisations. Granting credit is bound up with
preliminary and subsequent checks on the financial position of the enterprise. For
this the credit institutions check fulfilment of plans of income and accumulation,
the use of the enterprises own and borrowed circulating resources for the stated
purpose, and so on. When loans are granted the credit institutions check how the
enterprise is using its resources and making its payments as they fall due, and
also the extent to which the enterprise is financially stable enough to use the
credit properly. The credit institutions take steps to improve the efficiency of
enterprises in making payments, their economic accounting and the regime of
economy.

Banks in Socialist Society

Banking in the U.S.S.R. is in the hands of the Socialist State. Banks in

socialist society are State institutions which carry out in a planned way in the
interests of the socialist economy the supply of credit to enterprises, the financing
of capital investments, and settlements and payments in the national economy.
Thus banks in socialist society retain their old form but have changed their
essential character in comparison with-that of capitalist banks.
The banking system of the Soviet Union includes the State Bank of the
U.S.S.R. and the specialised State long-term investment banks. The leading
position in the banking system is occupied by the State Bank.
The State Bank of the U.S.S.R. is the countrys issue bank, short-term credit
bank and clearing centre. It performs the following functions:
First, it controls currency circulation, the movement of cash in the country.
It takes currency out of circulation and issues currency according to the plan and
by the methods laid down by the Government of the U.S.S.R..
Secondly, it serves as cashier for the national economy; i.e., it concentrates
in its branches the cash of socialist enterprises, State and voluntary
organisations, and issues cash to them for their current payments.
Thirdly, it provides short-term credit to those enterprises and economic
organisations in all branches of the national economy (with the exception of
building organisations) which are run on the system of economic accounting.
Fourthly, it is a clearing centre; i.e., it organises and carries out monetary
settlements between enterprises institutions and organisations within the country.
Fifthly, it administers the cash side of the execution of the Budget: it repays
payments provided for in the Budget, issues budgetary resources strictly as
specified and within the limits of the allocations made, and keeps account of
Budget revenues and expenditure.
Sixthly, it holds the countrys foreign currency funds and settles
international accounts on trading and other economic operations between the
U.S.S.R. and foreign countries; part of these settlements are effected through the
U.S.S.R. Bank for Foreign Trade (Vneshtorgbank).
 The U.S.S.R. State Bank is the largest bank in the world. It has its
subordinate institutions in the republican, territory, regional, and almost all the
district centres of the country. By organising settlements through clearing
accounts and by credit operations the State Bank fulfils its function of being the
most important instrument of the State for rouble control of the financial and
economic work of enterprises and organisations. Clearing settlements effected by
the State Bank embrace the overwhelmingly greater part of the payments
turnover of enterprises and economic organisations.
Long-term investment banks serve particular branches of socialist economy.
Their main function is to finance and provide long-term credits for capital
investments by enterprises in the appropriate branches of the national economy.
All monetary resources allocated by plan to capital investment are concentrated in
the appropriate investment banks, which administer all payments or construction,
issue funds for building work and supervise its expenditure In conformity with the
plan.

In the U.S.S.R. there are: the bank for financing capital investments of State enterprises
and building organisations in industry, transport, and posts and telegraphs (Prombank); the bank
for financing capital investments by State enterprises and organisations in agriculture and forestry,
and for long-term credits to collective farms and the rural population (Selkhozbank); the bank for
financing capital investments in trade and co-operation (Torgbank); and the central bank for
financing municipal economy and housing (Tsekombank), together with local municipal banks
which come under local authorities.

The banks carry out rouble control of production and circulation, and thus
assist the strengthening of the regime of economy and economic accounting. This
control is effected (i) by financing and granting credits for measures envisaged by
plan and in accordance with the actual fulfilment of the plan; (ii) by requiring that
loans should be returned in accordance with the appointed dates for achievement
of planning targets; (iii) by applying appropriate penalties when the approved
regulations for use of funds and the fixed dates for repayment of loans are not
adhered to (these penalties include, for example, the exacting of a higher interest
rate and withdrawal of the right to receive further credits).
In order to improve the economic work of enterprises and to enforce a strict
regime of economy it is necessary to increase rouble control of production by the
banks and to bring pressure to bear on enterprises which are badly managed.

It is very important for the strengthening of economic accounting and control by the rouble
that the State Bank approaches differently the allocation of credit to enterprises which are working
well and enterprises which are working badly. To enterprises which have not fulfilled their tasks in
reducing costs, or their accumulation plans, or have not preserved their own circulating resources,
a harsher credit and settlements regime is applied, which may go as far as ceasing to give further
credit, the calling-in before they are due of loans previously given, and other measures. At the
same time, enterprises which have worked well receive a number of benefits in connection with
credit, especially in the form of increased loans. This differentiated approach enhances the role of
rouble control by the bank in stimulating an improvement in the quality of an enterprises work
and observance by it of a regime of economy.
 The banks work on the basis of economic accounting. The net income of a
bank is the difference between the amount it receives in interest on the one hand
and the total interest it pays out, together with the cost of maintaining its
machinery on the other.
On the basis of the growth of socialist economy and the development of
credit relations the turnover of the banks is continuously increasing. Total credit
investments by the State Bank in the national economy amounted to 190 milliard
roubles at the end of 1954, 340 per cent of the 1940 level.
State savings banks accept cash deposits from individual citizens and from
collective farms and voluntary organisations, paying a definite rate of interest on
deposits and rendering services to the working people in paying their accounts,
e.g., for municipal services, rent, etc. The steady increase in the deposits placed
in the savings banks by the population is an index of the continuous improvement
of the material well-being of the working people. By the end of 1954 total
deposits by the population in the savings banks amounted to 48.4 milliard
roubles, compared with 18.5 milliard in 1950. Savings banks also effect
operations in connection with State loans: they pay out lottery prizes and interest.

Currency Circulation in Socialist Economy

Soviet money is a gold token, a universal equivalent. As stated above, its

stability is primarily assured by the vast commodity stocks held by the State and
released for sale at fixed prices. Soviet currency also has a gold backing.
The steady growth of socialist production and commodity turnover
constitutes the firm foundation of Soviet money. Of great importance for
increasing the purchasing power of the Soviet rouble is the reduction of prices,
based on the reduction of the cost of production and costs of circulation and on
increasing the volume of commodities available.

Soviet money circulates in the form of 10-, 15-, 50-, and 100-rouble banknotes, which are
backed by gold, precious metals, and other assets of the U.S.S.R. State Bank. In addition to
banknotes, 1-, 3-, and 5-rouble State treasury notes, and metal coins of small denominations, are
also in circulation.

Soviet money can fulfil in a normal way its role as a gold token if the
amount of this money available is in accordance with the actual requirements of
the national economy for means of circulation and of payment.
In socialist economy currency circulates in conformity with the economic
law that the quantity of money required for commodity circulation is determined
by the sum of the prices of the commodities in circulation and the velocity of
circulation of money. Book-keeping settlements without cash payments, made in
the course of commodity circulation, have the effect of reducing the amount of
currency required. The total sum of currency in circulation, required by society
over a definite period, depends in addition on the total currency payments which
are made over the period involved. In socialist economy these payments include
wage payments, money payments for work-days, lottery prizes, and others.
Current payments by the population include house-rents, taxes, savings bank
deposits, and others.
Thus in socialist society the quantity of currency required in circulation is
determined by the sum-total of prices of the commodities sold for cash, the size
of current payments in cash, and the velocity of circulation of currency. Normal
functioning of monetary circulation is an important condition for the planned
development of the national economy.
On the basis of the law of planned development of the national economy
and utilising the law of currency circulation, the Socialist State plans the
circulation of currency in the country in inseparable connection with the planning
of the entire national economy as a whole. In the Soviet Union emission is strictly
centralised. Currency is issued into circulation by the State Bank of the U.S.S.R.,
and each supplementary issue by the State Bank is made by a Government
decision. The bulk of the cash issued by the State Bank is used in conformity with
plans to pay wages, to make money payments on account of work-days, and to
pay for State purchases, compulsory and voluntary, of agricultural produce from
collective farmers. In the reverse direction the main channel along which money
returns to the Bank is the receipts of trading organisations, which provide more
than four-fifths of all State Bank receipts, and also the receipts of municipal
undertakings, transport, and posts and telegraphs, which are paid into the Bank
daily.

Currency is also issued from the State Bank to pay interest, lottery prizes and redemption
of bonds of State loans, pensions, allowances, insurance moneys, small accounts, etc. The State
Bank regularly receives money on account of taxes and other payments under the Budget, and
also of deposits in the savings banks, insurance contributions, and so on. Thus a mass of currency
continuously passes through the branches of the State Bank.

One of the essential conditions influencing currency circulation is the

relationship between the monetary incomes of the population on the one hand,
and the volume of trade and of services which are paid for by the population on
the other. A balance of money incomes and expenditures of the population is
compiled in order to ascertain these relationships and to ensure in the national
economic plan the requisite proportions between the increase in the money
incomes of the population and the increase in the corresponding total mass of
commodities and chargeable services. In this balance all the money incomes and
expenditures of the population which are due to take place in the planned period
are taken into account. Definite proportions in the movement of currency laid
down for the various elements in the national economic plan (the wage-fund,
commodity turnover, the State Budget, etc.) make it possible to fix the
appropriate plan targets in the sphere of currency circulation.
An important instrument in planning currency circulation is the cash plan of
the State Bank, which has to be approved by the Government. The cash plan is a
plan of the cash turnover for the whole system of the State Bank. It shows all the
cash receipts expected by the Bank in the. planning period concerned, and all its
cash payments. In compiling it, the balance of money incomes and expenditures
of the population is taken into account. It therefore takes into account the volume
of retail trade, the volume of procurements of agricultural produce, the sum-total
of wages of manual and clerical workers, and other indices which determine the
size of cash receipts and payments. The cash plan makes provision for the
emission of currency and its withdrawal from circulation, in accordance with the
relationship between the cash income and expenditure of the State Bank over the
country as a whole.
The State Bank also regulates currency circulation in the country by means
of the credit plan.
The planned organisation of currency circulation makes it possible to
increase or reduce the total mass of currency and to provide the right quantity of
currency required for circulation at each period, in every district, and throughout
the country as a whole. In this way currency circulation is put on a firm footing.
The currency reform at the end of 1947 was of tremendous importance in
stabilising the Soviet currency system.
In the currency reform, the former currency, which had been devalued to a
certain extent during the war, was exchanged for new 1947 currency of full value,
in accordance with conditions which were laid down. Unlike the currency reforms
in capitalist countries, carried through by worsening the conditions of the working
people, the Soviet currency reform was carried out in the interests of the working
people. The wages of manual and clerical workers continued to be paid at the
same rates, but in new money of full value. The currency reform was
accompanied by a reduction in the prices of commodities. It eliminated the effects
of the war in the sphere of currency circulation, restored the full-value Soviet
rouble, increased the importance of money in the national economy, facilitated
the return to retail trade at uniform prices without ration-cards, and led to a rise
in the real wages of manual and clerical workers and the real incomes of the
collective farmers.
Currency circulation was put in order, the production of consumer goods
increased, retail trade expanded and the prices of goods were reduced. All these
factors led to a rise in the purchasing power of the rouble and of its exchange
rate. From March 1, 1950, the Soviet Government raised the official exchange
rate of the rouble; and the rate was henceforth fixed directly in terms of gold, in
conformity with the gold content of the rouble, instead of on the basis of the
dollar, as had been laid down in 1937.
In socialist economy there is a State foreign currency monopoly, i.e., the
Socialist State handles all accounts with foreign States and the purchase, sale and
possession of foreign currency. The State foreign currency monopoly and the
monopoly of foreign trade make Soviet currency independent of the changeable
situation on the capitalist market. This independence is constantly reinforced by
the accumulation of gold reserves and the favourable trading and payments
balances of the U.S.S.R.
 BRIEF CONCLUSIONS
(1) The finance of socialist society includes the State Budget, the finances
of socialist enterprises, State social insurance, State property and personal
insurance, and various forms of credit.
(2) The State Budget is the main form by which a centralised fund of
monetary resources is formed and utilised in a planned way to meet public needs.
The main source of the revenue side of the Budget is the net income of society,
which is primarily used to finance economic construction and cultural
development.
(3) Credit in socialist society is a method of concentrating in State hands
money which is temporarily not in use, and using it in a planned way, on condition
of repayment, for fulfilling the needs of socialist economy. Interest is the payment
fixed by the State for the temporary use of money loans; its source is the net
income of enterprises. Credit is effected by the banks and by the savings banks.
There are two kinds of banks in the U.S.S.R.: the State Bank, which is the bank of
issue, the short-term credit bank, and the centre of accounting for the country;
and the specialised State long-term investment banks. The banks carry out rouble
control in respect of production and circulation, and assist in strengthening
economic accounting.
(4) The Socialist State plans currency circulation in the country on the basis
of the law of planned development of the national economy and the law of
currency circulation. By the planned organisation of currency circulation in
socialist economy, the total mass of currency is made to conform to the cash
requirements of commodity circulation. On the basis of the growth of production,
increase in commodity turnover and reduction of prices the Socialist State
ensures. a strengthening of currency circulation and rising purchasing power of
the rouble.
 CHAPTER XXXIX

SOCIALIST REPRODUCTION

The Essence of Socialist Reproduction

Continuous renewal of the production of material wealth, or reproduction, is

a condition for the existence and development of all societies, including socialist
society.
The basic tenets of the Marxist-Leninist theory of reproduction retain their
full force in both socialist and communist society: simple and extended
reproduction, the total social product and the national income, the division of
social production into the production of means of production and the production of
articles of consumption, the priority growth of production of means of production
under extended reproduction, accumulation as the only source of extended
reproduction, the need for definite proportions between the different parts of the
total social product. In planning the national economy, socialist society cannot
avoid applying these propositions.
But reproduction in socialist economy is fundamentally different from
reproduction under capitalism.
In conformity with the requirements of the basic economic law of socialism,
socialist reproduction is subordinated to the purpose of securing the maximum
satisfaction of the constantly growing material and cultural requirements of the
whole of society, whereas capitalist reproduction is subordinated to the task of
obtaining maximum profits for the capitalists.
Capitalist reproduction takes place blindly, and is periodically interrupted by
economic crises, whereas development without crises, and continuous extended
reproduction, are characteristic features of the socialist mode of production. The
Socialist State takes the law of planned development of the national economy as
its basis, and conforms in all respects with the requirements of the basic
economic law of socialism. From this starting-point, through the planning system,
it determines the rate of development of the national economy, the proportions
and connections between its various branches, and the volume of accumulation
and consumption.
The process of reproduction taken as a whole is primarily the process of
reproduction of the social product. In the reproduction of the social product, the
leading part is played by the reproduction of the means of production, primarily
the instruments of labour. Continuous augmentation and improvement of the
instruments of labour is a necessary condition for technical progress. Socialist
reproduction is carried out on the basis of a rising level of technique. In addition
to the instruments of labour, other elements of the means of production are also
reproducedthus existing factory buildings are extended and new ones are
erected and equipped, new means of transport are brought into being, and the
production of raw materials is increased.
Extended reproduction of the means of production is a necessary condition
for extending the production of articles of consumption (clothes, footwear, food
products, etc.).
A high rate of reproduction of the social product is characteristic of socialist
society. This is primarily because exploiting classes and their parasitic hangers
on do not exist in socialist society, there are no crises or unemployment, the
labour resources of society are used in a planned and efficient way, and the
productivity of labour increases consistently and rapidly. High rates of growth of
the social product are made possible by socialist emulation and by socialist
methods of economic managementsystematic application of the regime of
economy, use of national economic funds in a planned way, improvement of
economic accounting, and constant reduction of the costs of production.

The following data indicate the high rate of socialist reproduction. The gross output of
large-scale industry in the U.S.S.R. was 35 times as large in 1954 as it was in 1913 (in
comparable prices)the production of means of production was nearly 60 times, and of electric
power more than 75 times as large. The chemical and engineering industries developed at an even
more rapid rate. In the U.S.S.R. the total social product was already 11 times as large in 1954 as
in 1928 (in comparable prices).
The rate of growth of industrial production in the U.S.S.R. is many times as great as in the
capitalist countries. The average annual rate of growth of industrial output in the U.S.S.R. during
the last 25 years (excluding the war years) was 18.2 per cent, while in the U.S.A. it was 2.4, in
Britain 3.6 and in France 2.1 per cent.

In the process of socialist reproduction; labour-power is reproduced. The

planned supply of labour-power to particular enterprises is one of the basic
conditions for extended socialist reproduction. As the national economy expands,
the size of the working-class continuously increases. Labour-power is attracted by
individual enterprises and economic organisations for all branches of social
production in an organised way. Industry, building, transport and agriculture are
supplied with skilled labour, in conformity with the needs of the national economy,
through the State system for training labour reserves, and through a special
network of schools, training courses, technical colleges, and places of higher
education. Labour is allocated in a planned way to branches of the national
economy and particular enterprises. The continuous improvement of the level of
skill and general culture of the mass of workers as a whole is a characteristic
feature of the reproduction of the labour force.
In socialist society extended reproduction is also the extended reproduction
of socialist relations of production.
This signifies reproduction of (a) socialist property in both its State and its
co-operative collective farm forms; (b) relations of comradely collaboration and
socialist mutual aid by the workers in the process of producing material wealth;
(c) mutual relations between workers in the distribution of articles of consumption
in conformity with the quantity and quality of the work of each worker.
Socialist relations of production are free from the extremely profound
contradictions which are inherent in capitalist production relations. The
reproduction of capitalist relations of production involves the increasing
exploitation of labour by capital, and the growth and deepening of class
contradictions between the exploiters and the exploited; and this inevitably leads
to the revolutionary downfall of capitalism. The reproduction of socialist relations
of production involves the strengthening of the alliance between the two friendly
classes (the working class and the peasantry), and of the intelligentsia integrated
with them; the consolidation of the moral and political unity of society; and the
gradual effacing of class boundaries and social distinctions between man and
man. In the process of extended reproduction there takes place the gradual
transition from socialism to communism.

The National Wealth of Socialist Society. The Structure of the

Total Social Product

The national wealth of socialist society consists of all the material wealth which is
at its disposal.

(1) The first element in the national wealth of socialist society is the production funds of
the economy, i.e., the means of production. These are subdivided into (a) the fixed production
funds, and (b) the circulating production funds of the national economy. The national wealth of
socialist society also includes natural resources which have been involved in the process of
reproduction (cultivated land and land suitable for cultivation, mineral deposits, forests, waters,
and so on).
The fixed production funds of the national economy are State or co-operative collective
farm means of labour which function in all branches of material production (buildings used for
production, machines, machine tools, equipment, installations, etc.). The circulating production
funds of the national economy are the objects of labour, which are both engaged in the production
process itself and held in stock by State enterprises, collective farms and other co-operative bodies
(raw materials, fuel, etc.).
(2) The second element in the national wealth is the circulation funds of the national
economy. They include stocks of finished output stored by State productive enterprises, collective
farms, producers co-operatives, and State and co-operative trading enterprises and organisations.
(3) The third element in national wealth is the material reserves of the State and the co-
operatives and collective farms, together with emergency stocks.
(4) The fourth element in the national wealth is the non-productive funds of the national
economy representing State or co-operative collective farm property which serves the purpose of
non-productive consumption over a long period: the housing fund and the buildings of cultural and
welfare bodies (schools, theatres, clubs, hospitals, etc., with t]1eir equipment).
Such are the main elements of the national wealth representing social, socialist property.
The national wealth also includes the personal property of the population, personal property which
increases on the basis of the continuous growth of social, socialist property. An important part in
the reproduction of material wealth is played by the accumulated experience in production, the
knowledge and skill of the working people of socialist society, and the varied spiritual wealth of the
country. The level of skill of the existing population is always a prerequisite of all production, and
is therefore the main accumulated wealth. (Marx, Theories of Surplus-Value, 1936, Russian
edition, Vol. III, p. 229.)
During the Soviet Five-Year Plans the national wealth of the U.S.S.R. increased
tremendously. The fixed production funds of the economy alone had grown six-fold in comparison
with 1913 by the end of 1940, and about twelve-fold by the end of 1954.

Under capitalism by far the larger part of the national wealth belongs to the
exploiting classes, and wealth is augmented in the form of the accumulation of
capital, leading to the impoverishment of the mass of the people. Capitalist
relations give rise to fictitious wealth, represented by shares, the price of land,
etc. In socialist society the whole of the national wealth is the property either of
the State (i.e., of the whole people), or of the collective farms and other co-
operative organisations, or is the personal property of the working people.
Socialism knows no such thing as fictitious wealth: all the wealth of socialist
society is real wealth. As the national wealth of socialist society grows, the
material well-being and the cultural level of the whole people rise.
National wealth includes all the material wealth which is possessed by
socialist society at a given moment. In other words, the national wealth reflects
the results of the whole preceding development of society. The total social
product, on the other hand, represents the material wealth created by society
over a particular period, such as a year.
The social product in socialist economy arises in two forms: (a) the physical
or material form, and (b) the value or monetary form. The total production of
socialist society is divided into two large departments: the production of means of
production which are to re-enter the process of production (Department I), and
the production of articles of consumption, which are to satisfy the needs of the
population (Department II). In conformity with this, the social product in its
physical or material form falls under either means of production or articles of
consumption.

In practical economic activity the division of the total social product into means of
production and articles of consumption takes place as a rule in accordance with the actual
utilisation of the output. Department I comprises all production devoted to productive needs. It
includes the products of heavy industry consisting of means of production, part of the products of
the light and food industries, which are used as raw material and are processed, buildings used for
production purposes, and also agricultural products used productivelyseeds, cattle, fodder and
agricultural raw material for use in industry.
Department II comprises all production devoted directly to satisfying the personal needs of
the population, including housing, and also that part of the social product expended in institutions
and organisations of the non-productive sphere, for instance, construction of schools and
hospitals, and the heating and lighting of non-productive buildings, etc.
In Department I it is essential to distinguish between the production of means of
production for Department I and the production of means of production for Department II. The
production of means of production, and especially the production of instruments of labour for
Department I, plays the leading role in the process of reproduction.

Extended socialist reproduction requires the constant renewal and increase

of the production of both means of production and articles of consumption, in the
definite proportions laid down by the national economic plan.
 In its value the social product is divided into: (1) the value of used-up
means of production, which has been transferred to the product; (2) the new
value which labour has created for itself; (3) the new value which labour has
created for society. The social and economic nature of each of these parts of the
value of the social product is essentially different from its nature under capitalism.
In the process of socialist reproduction, national economic funds function in place
of constant and variable capital, and the net income of society takes the place of
surplus-value.
The process of socialist reproduction presupposes in the first place that the
used-up means of production are replaced according to plan by a definite part of
the total social product, in kind and in value. Fixed funds are replaced in kind by
partial or complete substitution of new for old machines, buildings and plant.
Fixed funds are replaced in value through the depreciation fund. The depreciation
fund of the national economy in the U.S.S.R. is set aside to make possible the
capital repair of fixed funds during the whole period in which they function, and
the replacement of the value of those which have been used up.
The process of socialist reproduction also presupposes that articles of
consumption must be newly created by workers in material production to replace
those which have been distributed according to work done and used to meet the
personal needs of these workers and their families.
Finally, in the process of socialist reproduction the workers in material
production create by their labour the product for society, earmarked for socialist
accumulation and for the satisfaction of the material and cultural needs of society
(education, health, administration, and the defence of the country).

The Relationship between the Two Departments of Social

Production

Through the planning system there are established in the process of

socialist reproduction the necessary proportions between the production of
means of production and the production of articles of consumption, between the
various branches of the national economy, between production and circulation,
between accumulation, consumption, reserves, and so on. These proportions are
established in conformity with the requirements of the basic economic1aw of
socialism and the law of planned (proportionate) development of the national
economy. The most important proportion in socialist reproduction is a correct
relationship between Department I and Department II. Department I, producing
the means of production, plays the determining role in the whole economy.
Without priority for the growth. of production of the means of production,
extended reproduction is altogether impossible:

To expand production (to accumulate in the categorical meaning of

the term) it is first of all necessary to produce means of production, and for
this it is consequently necessary to enlarge that department of social
 production which manufactures means of production. (Lenin, A
Characterization of Economic Romanticism, Moscow, 1951, English edition,
p. 44.)

Lenin described priority for the growth of production of the means of

production, relative to the production of articles of consumption, as an economic
law in conditions of extended reproduction.
The law of priority growth of the production of means of production
assumes even greater importance under socialism than under capitalism. A more
rapid growth of Department I compared with Department II is a necessary
condition for ensuring the uninterrupted advance of socialist production on the
basis of higher techniques.
Priority for the growth of the production of means of production (above all,
of heavy industry) is a necessary pre-requisite for the extensive introduction of
up-to-date technique into all branches of socialist production and the systematic
raising of the productivity of labour.
Priority for the growth of production of the means of production means that
industry develops more rapidly than agriculture. In socialist economy proportions
between industry and agriculture are fixed in such a way as to make possible the
continuous growth of agricultural production as well as industrial production.
Only the priority for the growth of production of means of productionand
that growth more rapid than under capitalismcan ensure a systematic increase
in the production of consumer goods and steady improvement in the peoples
welfare. Uninterrupted and rapid growth of heavy industry, running ahead of the
growth of the other branches of industry and the national economy, is the
indispensable condition for stable progress in agriculture and in the light and
food-producing industries which produce consumer goods.
Thus in conditions of extended socialist reproduction in which rapid technical
progress is taking place, it is a characteristic of the development of production
that branches producing means of production (Department I) grow more rapidly
than branches producing articles of consumption (Department II). At the same
time, in socialist society, the production of articles of consumption increases
continuously in absolute terms; this is expressed in the growth of the output of
agriculture and of the light and food-producing industries, in the expansion of
house-building in town and country, and in the extension of commodity turnover.

The proportion of means of production to total industrial output in the U.S.S.R. was 34 per
cent in 1924-5, 58 per cent in 1937, and approximately 70 per cent in 1953.
The industrial production of consumer goods in the U.S.S.R. increased fourteen-fold
between 1925 and 1954. Home trade in 1954 was more than nine times as great as in 1926 (in
comparable prices).

The priority growth of the production of means of production as the

economic law of extended reproduction does not exclude the fact that in particular
years it may happen to be practically expedient and necessary, in order to put an
end to lagging behind in the production of consumer goods, and to overcome the
partial disproportions arising from this, to make this production catch up,
accelerating the development of certain branches of agriculture or of the light or
food-producing industries.
Thus, in recent years the Communist Party and the Soviet State, basing
themselves on the uninterruptedly growing might of heavy industry, have worked
out and are successfully putting into effect a complete programme for a sharp rise
in agricultural production. Fulfilment of this programme will enable the tempo of
growth of the production of consumer goods to be accelerated and a further rise
in the standard of living of the Soviet people to take place. The carrying out of
these tasks demands a steady growth of heavy industry. Without machinery,
without all-round mechanisation of arable and livestock farming, a sharp rise in
agricultural production cannot be secured. All this testifies to the fact that priority
growth of the production of means of production is an indispensable basis for the
general line of development of socialist economy.

The results of industrys work during the last few years confirm anew
the correctness of the general line of our Party on priority development of
heavy industry. In steadily carrying out this line, the Party has been guided
by the behests of the great Lenin on the need for more rapid development
of the production of means of production, as compared with the production
of consumer goods, as the indispensable condition of extended socialist
reproduction.
Heavy industry must, as before, develop faster than the other
branches of the national economy. The higher the level of development of
heavy industry in our country, determining the further advance of all
branches of the national economy, the more fully shall we be able to satisfy
the continually growing demands of the Soviet people and the more rapidly
to create an abundance of consumer goods and effect the transition from
socialism to communism. (Decisions of the July, 1955, Plenum of the
Central Committee of the C.P.S.U.)

In 1955 industrial production of consumer goods (group B industries) was 72 per cent
higher than in 1950 (as against the 65 per cent provided for in the Five-Year Plan). At the same
time, the production of means of production (group A industries) was 84 per cent (compared with
80 per cent, the figure laid down in the Plan). The rapid growth of heavy industry has created a
firm basis for successful development of the light and food-producing industries and of agriculture.

How does exchange take place in socialist economy between Department I

and Department II and within each of these Departments?
In the first place, exchange takes place between the different branches of
Department I.
Part of the means of production created in Department I remains in that
Department and enables simple reproduction to take place. This part is used to
replace means and objects of labour which have been partly or fully used up
(replacement of worn-out machines, capital repair of equipment, renewal of
consumed stocks of raw materials, and so on). A second part of the means of
production ensures extended reproduction in the various branches of the
economy which form part of Department I. For example, the coal and oil
industries supply fuel to the engineering branches and receive from them the
equipment they themselves need; the metallurgical industry supplies the building
industry with the metal it needs, and in its turn uses raw materials from the ore-
mining industry to increase the quantity of metal smelted, and so on.
Thus exchange takes place according to plan between the branches of
Department I, involving those means of production which are used to maintain
and extend production in these branches. As was stated above, within the limits
of the State production sector the means of production which are produced are
not in essence commodities, but are distributed as material and technical
supplies, retaining merely the form of commodities.
Secondly, exchange takes place between the different branches of
Department II. The output of Department II consists of articles of consumption.
Part of this output is transferred to workers in the Department for their personal
consumption: it is exchanged, through the channels of commodity circulation, for
the wages of workers and employees and for the money incomes of collective
farmers. Some of the articles of consumption produced in the collective farms are
distributed and consumed in the collective farms themselves, and do not assume
the form of commodities or pass through the channels of market circulation.
Thirdly, exchange takes place between Department I and Department II.
Part of the means of production produced in Department I have to be used to
replace means of labour which have been partly or fully used up in Department II,
to renew stocks of raw and other materials, and of fuel, which have been
consumed in that Department, and to enlarge the means of labour and stocks of
raw and other materials and fuel which Department II needs for extended
reproduction. Part of the output of articles of consumption in Department II is
exchanged through the trade network for the wages of workers in Department I.
The rate at which production is extended and technical progress advances in the
branches of Department II depends primarily on the quantity and quality of the
means of production which they receive from Department I. The leading role of
Department I in relation to Department II is determined by this fact.
Lenin pointed out that Marxs formula on the relationship between
Departments I and II of social productionthe relationship of I (v +s) to IIc
remains in force for socialism and communism. However, the social and economic
relations concealed behind this formula are radically changed.
Under extended socialist reproduction Department I must produce sufficient
means of production to make possible the continuous growth of production, on
the basis of a rising technical level in both Departments, with a more rapid growth
in Department I. On the other hand, Department II must produce sufficient
articles of consumption to satisfy the continuously growing needs of workers in
both Departments (both those who were working previously, and new workers
who have been drawn into production), and of workers employed in non-
productive branches. In each particular period part of the means of production
and articles of consumption which are produced is used to increase reserves.
In the anarchical conditions of capitalist production, in which the demand of
the mass of the working people is restricted in terms of available purchasing
power, the most difficult problem for capitalist reproduction is that of the
realisation of the social product. Socialist production develops according to plan
and without crises, and does not come up against the difficulties of realisation,
which are inherent in capitalism. This is because the uninterrupted growth of the
purchasing power of the population creates a constantly expanding demand for
the output of industry and agriculture.
However, this does not mean that in the course of extended socialist
reproduction particular proportions in the national economy may not sometimes
be disturbed; for example, through miscalculations in planning, as a result of not
taking the requirements of the law of planned development of the national
economy sufficiently into account; or natural calamities may occur, such as
droughts, which have a harmful influence on production. The Socialist State sets
aside the necessary reserves to forestall or eliminate the individual disproportions
in the economy which arise from such causes.

The Formation and Function of Social Funds in Socialist

Economy

The socialist mode of production also determines the forms of distribution of

the total social product appropriate to it. Society, in the person of the Socialist
State, distributes the social product in a planned way in conformity with the
requirements of the basic economic law of socialism.
As stated earlier, the total social product, after subtraction of the part which
is used to replace means of production which have been consumed, forms the
national income of socialist society. The national income is divided into two large
funds, the accumulation fund, which is used to bring about the continuous growth
and improvement of socialist production, and the consumption fund, which is used
to satisfy the continuously growing material and cultural needs of the whole of
society.
The bulk of the accumulation fund is allocated to the extension of
production. The scale of production in socialist society grows regularly from year
to year, and at rates which the capitalist world has never achieved.
A second part of the accumulation fund is allocated to capital construction
in the cultural and welfare field. This includes carrying out capital work on a vast
and increasing scale in the building of schools, hospitals, and municipal
institutions.
Finally, a third part of the accumulation fund forms the reserve or insurance
fund of society. State reserves of raw materials, fuel and foodstuffs, and reserve
funds in the collective farms, make it possible to avoid hold-ups in the process of
reproduction.
The consumption fund in its turn consists of two parts. The basic part of this
fund is the fund for the payment according to work done of workers in socialist
production, which is used, in accordance with the economic law of distribution
 according to work done, to pay wages to the manual and clerical workers
employed in production, to pay for the work of collective farmers, etc. A second
part is the fund of social consumption, used to cover the varied needs of socialist
society as a whole.
Part of the fund of social consumption is expended on social and cultural
purposes: it covers the growing needs of socialist society in science, education,
health, the arts, and other branches of culture and welfare. It is from this fund
that, in conformity with the economic law of distribution according to work done,
the workers in the cultural and welfare services receive their wages.

TOTAL PRODUCT OF SOCIALIST SOCIETY

REPLACEMENT OF NATIONAL
CONSUMED MEANS INCOME
OF PRODUCTION

CONSUMPTION
ACCUMULATION FUND
FUND

FUND FOR THE FUND FOR FUND FOR FUND FOR FUND FOR SOCIAL STATE
EXTENSION OF CAPITAL SOCIAL PAYMENT OF SCIENCE, SECURITY ADMINISTRATION
PRODUCTION CONSTRUCTION RESREVES AND WORKERS IN EDUCATION, FUND FUND
FOR CULTURAL INSURANCE PRODUCTION HEALTH, AND
OR ACCORDING TO THE ARTS
WELFARE WORK DONE
PURPOSES

Chart of the Distribution of the Total Product in Socialist Society

Part of the fund of social consumption forms the social security fund, which
provides State assistance to mothers with many children, and those without a
breadwinner, to children, old people and invalids, in conformity with the right,
recognised by the Soviet State, to material security when incapable of work and
in old age.
Part of the fund of social consumption is used to cover outlays on
administrationto pay workers in the machinery of government, etc.
Part of the national income is used for the defence needs of the country.
While the danger exists of military attacks on the U.S.S.R. by imperialist
aggressors, it is of extremely great importance to strengthen the defensive
capacity of the land of socialism.
As pointed out earlier, the greater part of the national income (about three-
quarters) is expended on satisfying the personal material and cultural needs of
the working people in the U.S.S.R.
Socialist Accumulation. Accumulation and Consumption in
Socialist Society

The source of extended socialist reproduction is socialist accumulation.

Socialist accumulation is the utilisation of part of the net income of society,
consisting of means of production and articles of consumption, to extend
production, and also to constitute material reserves and increase the non-
productive social and cultural funds.
As a result of socialist accumulation there is a growth of material values
owned by the State, the co-operatives and the collective farms. This means an
increase in the national wealth of socialist society. The accumulated part of
national income is also expressed in money terms. The major part of the
monetary accumulations of all branches of the national economy, and part of the
money in the hands of the population, is mobilised through the State Budget for
public needs.
Socialist accumulation takes place by means of capital investments in the
national economy. Capital investments are the total outlays used over a particular
period to create new productive and non-productive fixed funds and to
reconstruct those already in existence. A certain part of the capital investments in
the national economy is used to replace fixed funds which have been consumed.
In a planned and systematic way the Socialist State carries out capital works on a
vast scale, such as the building of new factories, works, power-stations and
mines, and the extension of existing ones, and the building of State farms,
machine and tractor stations, means of transport and communications, housing,
schools, hospitals and. childrens institutions.

The volume of State capital investments in the national economy of the U.S.S.R. was as
follows (in present prices):
1929-32 68 milliard roubles.
1933-37 158 milliard roubles.
1946-54 over 900 milliard roubles.

Capital investments are mainly allocated to the extension of socialist industry. From capital
investments more than 1,500 large-scale industrial enterprises were built and put into operation
during the first Five-Year Plan, 4,500 during the second, and approximately 3,000 during the 3
years of the third Five-Year Plan. In 1946-54 more than 8,000 State industrial enterprises were
constructed or rebuilt. Many thousands of cultural and welfare institutions were set up in addition
to industrial and agricultural enterprises.
 Socialist accumulation is based on continuously increasing the productivity
of social labour and systematically reducing the costs of production.
In socialist economy there is a high rate of accumulation, such as capitalism
has not achieved even in the most favourable periods of its development. This is
because socialist economy is planned and free from crises, the level of capital
investment in the national economy is high; means of production and labour
resources are used in social production in a planned and rational way, and
parasitic consumption is absent.

In the U.S.A. in 1919-28 the proportion of the national income allocated to accumulation
averaged IO per cent, and in the decade from 1929 to 1938 it averaged only 2 per cent. In the
U.S.S.R. the fund of accumulation (including reserves) is approximately one-quarter of the
national income.

Socialism has abolished the antagonistic contradiction between production

and consumption which is characteristic of capitalism. Extended socialist
reproduction is based on priority growth of the production of means of production,
and along with this presupposes a steady increase in production of consumer
goods.
Under capitalism articles of consumption are divided into the necessary
means of consumption of the working masses and luxury goods which form part
of the consumption fund only of the exploiting classes. This division is inherent in
capitalism and is caused by the existence of antagonistic classes. In socialist
society it does not exist; the whole consumption fund is allocated to the working
people.
With the development of production, the growth of the national income, and
the increase in the volume of socialist accumulation, the consumption funds also
increase, and the social and personal needs of the working people are satisfied
more and more fully.

The growth of consumption by the people is accompanied by an improvement in its

structure: the proportion of high quality goods and products in the consumption funds
continuously increases. From 1947 to 1954 the sale of white bread to the population increased by
more than 600 per cent, of meat products 150 per cent of animal and vegetable fats more than
100 per cent, of sugar almost 500 per cent, and of fruits more than 250 per cent. In 1940
manufactured commodities constituted 36.9 per cent of trade turnover, and in 1954 45.2 per cent.

All this means that socialism has an economic law of accumulation which is
characteristic of it. The law of socialist accumulation involves the continuous
growth of national wealth by means of the consistent utilisation of part of net
income to extend production, so that the growing needs of the whole of society
may be satisfied. As a result of the general law of capitalist accumulation,
increases in the wealth of the exploiting classes are inevitably accompanied by
the impoverishment of the mass of the working people. In contrast to this, the
operation of the law of socialist accumulation has the result that, as the national
wealth increases, so the material and cultural level of the people consistently
rises.
 Through the planning system the Socialist State fixes for each period
definite proportions between the accumulation and consumption funds, taking as
its starting point the fundamental tasks of the construction of communism. The
Communist Party and the Soviet Government by carrying out far-reaching
measures to secure a sharp advance in agriculture and the development of
industries producing consumer goods are ensuring an increase in the production
of food and manufactured consumer goods.
All aspects of extended socialist reproductionproduction, distribution,
circulation and consumptionin their unity and inter-connection, are covered by
the balance-sheet of the national economy of the U.S.S..R. This balance-sheet,
embodied in the national economic plan, expresses the whole process and results
of extended socialist reproduction.
In socialist society the capitalist law of population has completely lost its
validity. As a result of the operation of that law, parallel with the growth of social
wealth, an increasing part of the working population becomes surplus and is
driven out of production into the ranks of the unemployed. The socialist system
ensures full employment to the whole able-bodied population, and therefore
surplus population does not and cannot exist. The population grows continuously
and rapidly; the level of material welfare of the people is high; the morbidity and
death rates are low, while the able-bodied section of the population is employed
fully and rationally. These features together constitute the essence of the socialist
law of population.

The average annual net growth of the U.S.S.R. population from 1926 to 1939 was
approximately 2 millions, or 1.23 per cent. Over the same period the average annual net growth of
the population was 0.08 per cent in France, 0.62 per cent in Germany, 0.36 per cent in Great
Britain, and 0.67 per cent in the U.S.A. In recent years the average annual net growth of the
U.S.S.R. population has been more than 3 millions. In 1954 the death-rate in the U.S.S.R. was
less than half that in 1927, and less than one-third that in 1913. The death-rate is lower in the
U.S.S.R. than in the U.S.A., Great Britain or France.

Thus the characteristic features of socialist reproduction are as follows: the

whole of social production expands continuously and in a planned way, at a high
rate which capitalism is unable to achieve; the size of the population as a whole,
including the working class and the intellectual workers, increases consistently
and rapidly; the material welfare and cultural level of the mass of the people
increases continuously.

BRIEF CONCLUSIONS
(1) Socialist reproduction is the continuous extended reproduction of the
total social product, of labour-power, and of socialist relations of production. The
advantages of socialist national economy, its planned development without crises,
make possible its continuous growth and a. high rate of extended socialist
reproduction.
 (2) The national wealth includes all the. material goods which are at the
disposal of socialist society. National wealth is made up of the following
constituent parts: fixed and circulating production funds of the national economy;
funds of circulation; State and co-operative collective farm material reserves and
insurance stocks; non-productive funds; and the personal property of the
population.
(3) The social product under socialism has two forms, the physical form and
the form of value. All of the production of the social product in socialist economy
is divided into the production of means of production (Department I) and the
production of articles of consumption (Department II). The social product in terms
of value includes: the value of means of production which have been consumed;
the newly-created value produced by labour for itself; and the newly-created
value produced by labour for society. Extended socialist reproduction presupposes
that the necessary conformity (proportionality) is maintained between all parts of
the social product both in its physical and its value forms. Extended socialist
reproduction takes place on the basis of the economic law of priority; that is,
more rapid growth of production of means of production (and, first and foremost,
of heavy industry), compared with production of consumer goods.
(4) In socialist society the social product is distributed so as to make
possible a continuous increase in socialist production in town and country, the
satisfaction of the continuously growing material and cultural needs of socialist
society, and the growth of the economic power and defensive capacity of the
country.
(5) Socialist accumulation is the utilisation of a part of the net income of
society, consisting of means of production and articles of consumption, for the
extension of production, the formation of social reserves, and the enlargement of
non-productive social and cultural funds. Socialism is free from the antagonistic
contradiction between production and consumption which is inherent in
capitalism. In contrast to the general law of capitalist accumulation, in virtue of
which increases in the wealth of the exploiting classes are inevitably accompanied
by the impoverishment of the mass of the working people, the operation of the
law of socialist accumulation leads to a consistent rise in the material and cultural
level of the people side by side with the growth of national wealth.
(6) In the socialist system the capitalist law of population has lost its
validity. The socialist law of population is expressed in the continuous and rapid
increase of the population, and in the rational and full employment of the able-
bodied section of the population in the interests of society as a whole.
 CHAPTER XL

THE GRADUAL TRANSITION FROM SOCIALISM

TO COMMUNISM

The Two Phases of Communist Society

As has been confirmed by the entire history of mankind, society develops from
lower to higher stages. Communist society, which is the final aim of the struggle
for emancipation of the working people in all lands, is the highest and most
progressive stage of social development.
Communist society passes through two phases of development: the lower
phase. known as Socialism, and the higher phase known as Communism. In the
first stage, communist society cannot as yet be free from the traditions and traces
of capitalism, from whose womb it has emerged. Only the further development of
socialism on the basis which it has itself created can lead to the second and
higher phase of communist society. Consequently socialism and communism are
two stages of maturity of the new communist form of society.
Social ownership of the means of production is the economic basis of both
phases of communism. The predominance of social ownership determines the
planned development of the national economy. Characteristic of both phases of
communist society is the absence of exploiting classes and of the exploitation of
man by man, of national and racial oppression. The purpose of production, both in
socialist and in communist society, is the maximum satisfaction of the constantly
increasing material and cultural requirements of the whole of society. The means
of its achievement is the continuous growth and improvement of production on
the basis of the highest techniques.
At the same time, the higher phase of communism differs in important
particulars from the lower phase, in so far as it is a higher stage in the economic
and cultural maturity of communist society.
Even at the stage of socialism, the productive forces attain a high level:
socialist production develops constantly at high rates of growth and the
productivity of social labour grows rapidly. But the productive forces of society
and labour productivity are still insufficient to provide an abundance of material
wealth. Communism presupposes a level of development of the productive forces
of society, and of the productivity of social labour, which will provide this
abundance.
As distinct from socialism, where there are two forms of social or socialist
propertyState and co-operative collective farm propertythe complete
predominance of one form alone, communist ownership of the means of
production, Will be established at the stage of communism.
Owing to the existence at the stage of socialism of two main forms of
socialist productionState and collective farmcommodity production and
commodity circulation are retained. At the stage of communism, however when
the predominance of one form of property and one form of production
communistwill have been established, there will no longer be commodity
production and commodity circulation, and consequently the need for money will
disappear.
While, at the stage of socialism, there is no longer an anti-thesis between
town and country, between mental and physical labour there still exist essential
distinctions between them. At the stage of communism these will no longer exist
and only inessential distinctions will remain.
There are two classes in socialist society: the working class and the
collective farm peasantry. They are friendly to each other but their status in social
production differs; together with the working class and the peasantry, there is a
social stratum composed of the socialist intelligentsia. With the abolition of the
distinctions between the two forms of socialist property and the elimination of the
essential distinctions between town and country, between mental and physical
labour, the boundaries between workers, peasants, and intelligentsia Will be
finally effaced. All will become working members of communist society.
Communism is classless society. At the stage of socialism labour, freed from
exploitation, is equipped with advanced technique and is a matter of honour. At
the same time, complete mechanisation of all the productive processes has not
yet been attained; work has yet to become a prime need of life; the careless
attitude of some members of society towards their work has not yet been
overcome; there is still a need for strictest supervision by society of the measure
of labour and the measure of remuneration. At the stage of communism,
complete mechanisation and automation of the productive processes will have
been attained and labour will be transformed in the eyes of the whole of society
from a mere means of life into a prime need of life.
Communism guarantees to all members of society the flowering of their
physical and mental abilities. All members of society will be cultured and highly
educated people, having the opportunity freely to. choose their occupations. Com-
munism presupposes a further development of science, art, and culture on a scale
hitherto unknown.
The high level of development, of the productive forces and of the
productivity of social labour will guarantee an abundance of every kind of material
and cultural wealth: which will make possible the. advance from the socialist to
the communist principle of distribution.
 In a higher phase of communist society, wrote Marx, after the
enslaving subordination of individuals under division of labour, and
therewith also the antithesis between mental and physical labour, has vanished;
after labour, from a mere means of life, has itself become the prime necessity
of life; after the productive forces have also increased with the all-round
development of the individual, and all the springs of co- operative wealth flow
more abundantly-only then can the narrow horizon of bourgeois right be
fully left behind and society inscribe on its banners: From each according to his
ability, to each according to his needs! (Marx, Critique of the Gotha Programme,
in Marx and Engels, Selected Works, 1950, English edition, Vol. II, p. 23.)

Such are the main distinctions between socialism and communism.

Elaborating and enriching the Marxist teachings on communism, Lenin
formulated the basic principles for the ways of building communist society. Laying
down the programme of the Communist Party, Lenin said:

In commencing socialist transformations, we must clearly have in

mind the aim towards which these transformations are, in the long run,
directed; namely, the aim of creating a communist society, not confined
merely to the expropriation of the factories, mills, land and means of
production, not confined merely to strict accounting and control of production
and distribution of products, but advancing further, to the realisation of the
principle: from each according to his ability, to each according to his needs.
(Lenin, Report at the VII Congress of the R.C.P.(B) on revising the
Programme and changing the name of the Party, Works, 4th Russian edition,
Vol. XXVII, p. 103.)

The Soviet Union possesses all that is necessary to build complete

communism. It has, for this purpose, gigantic material resources and natural
wealth, a powerful industry and a highly mechanised agriculture. A further
powerful factor in accelerating the development of the Soviet economy towards
communism is the creative participation of the masses, expressed in the socialist
emulation of the whole people. The Soviet people is being led to communism by
the Communist Party, equipped with the theory of Marxism-Leninism, knowledge
of the economic laws of socialism and a scientifically based programme for
building communist society.
The international conditions in which the building of communism is taking
place in the U.S.S.R. have been fundamentally altered since the second world war.
Whereas formerly the Soviet Union was the only socialist country, there is now a
powerful camp of socialism numbering hundreds of millions of people. The
formation of the camp of socialism has brought about a fundamental change in
the balance of forces in the world arena and has created a new environment for
the building of socialism and communism. In the Peoples Democracies of Europe
and Asia, the foundations of socialism, the first phase of communist society, are
being laid. A decisive condition for the victory of socialism and communism in all
the countries of the socialist camp is the further consolidation of the power of this
camp, and the development of close economic, political and cultural co-operation
of the peoples belonging to it.
But alongside the socialist camp there is the hostile imperialist camp. So
long as this camp exists, there remains the danger of armed attack on the Soviet
Union and the Peoples Democracies by aggressive imperialist Powers.
Marxism-Leninism teaches that with the abolition of classes and class
distinctions, in the higher phase of communism, the State will become
unnecessary and will gradually wither away. But in this respect international
conditions have to be considered. To the questionwill our State remain in the
period of communism as wellStalin gave the following answer: Yes, it will, if
the capitalist encirclement is not eliminated, and if the danger of military attack
from abroad is not abolished, although naturally, the forms of our State will again
change in conformity with the change in the situation at home and abroad.

No, it will not remain and will wither away if the capitalist
encirclement is eliminated and is replaced by a socialist encirclement.
(Stalin, Report to the XVIII Congress of the C.P.S.U.(B), Problems of Leninism,
1953, English edition, p. 797.)

The Socialist State is necessary until the danger of attack on the U.S.S.R.
and other countries of the socialist camp by imperialist States has been
eliminated. Until then, while carrying on a consistently peaceful policy, the Soviet
Union and the other countries of the socialist camp must at the same time be
ready to repel any hostile attack from without. This requires that the Socialist
State be strengthened in every possible way, the economic power of the country
increased and its defensive capacity ensured.
The transition to communism cannot be seen as an instantaneous act. It
takes place gradually, through an all-round development of the foundations and
principles of socialism. Completing the construction of socialist society means at
the same time making the gradual transition from socialism to communism.
The gradual transition from socialism to communism does not exclude the
possibility of revolutionary leaps in the development of technique, the economy,
science and culture. For example, the discovery of new sources of power and new
kinds of raw material and the introduction of new technical inventions into
production give rise to a real technical revolution. The transition from two forms
of social ownership to uniform communist ownership of the means of production,
from the socialist principle of distribution according to work done to the
communist principle of distribution according to need will mean profound
qualitative changes in the economy and in the whole life of society.
The law of transition from an old qualitative state of society, to anew one
through an explosion, which necessarily applies to a society divided into
antagonistic classes, is not binding at all upon a society which is without
antagonistic classes, as is the case with socialist society. The material and cultural
prerequisites of communism are formed step by step as the productive forces of
socialist society develop, as its wealth and culture grow, as social ownership of
the means of production is strengthened and increased, and as the masses are
educated in the spirit of communism.
This does not mean that the development of society along the road to
communism takes place without internal contradictions having to be overcome.
These contradictions, however, as already mentioned, are not antagonistic in
character. The Communist Party and the Soviet State, knowing the economic laws
of societys development and relying upon them, are able in good time to reveal
the contradictions as they arise and take measures to solve them.

The Basic Economic Task of the U.S.S.R.

The Soviet Union is a mighty industrial power. In the tempo of development

of its industry the Soviet Union is ahead of all the capitalist countries. In the
overall amount of industrial production, in the volume of production of such
decisive branches of the national economy as the production of pig-iron and
steel, the output of coal and the output of electrical power, the U.S.S.R. is ahead
of all capitalist countries except the U.S.A., and holds second place in the world.
However, the task, laid down by V.I. Lenin, of overtaking and outstripping
economically the most highly-developed capitalist countries, has not yet been
fulfilled. A countrys economic might is determined not by the volume of
production generally, but by the volume of production taken in connection with
the numbers of the population, that is, calculated per head of population.
Together with this, the amount of industrial production and especially of heavy
industrial production, is of decisive significance.
The basic economic task of the U.S.S.R. consists in overtaking and
outstripping economically, that is, in production (and, first and foremost,
industrial production) per head of population the most highly developed capitalist
countries of Europe and the U.S.A. Only if we outstrip the principal capitalist
countries economically can we reckon upon our country being fully saturated with
consumers goods, on having an abundance of products, and on being able to
make the transition from the first phase of communism to its second phase. (J. V.
Stalin, Report to the XVIII Congress of the C.P.S.U. (B), Leninism, 1940, English
edition, p. 634.)
The struggle to fulfil the basic economic task of the U.S.S.R. is of decisive
significance for the building of communism, for the victory of the socialist system
of economy in economic competition with the capitalist system. The decisive
advantages in this competition between two opposing systems lie with the
socialist system of economy. The advantages possessed by the socialist system of
economy make it. possible to solve the basic economic task in an historically very
short space of time.
To fulfil the basic economic task it is necessary firmly to ensure an
uninterrupted advance of the whole of social production, with priority for the
growth of the production of means of production.
In order to ensure continuous extension and improvement of production on
the basis of advanced technique an enormous increase of production capacity is
required in all branches of the national economy, and above all in heavy industry.
This increase in production capacity is brought about by the capital construction of
socialist enterprises, based on the most up-to-date achievements of science and
technique, the technical reconstruction of existing factories and works,
replacement. of obsolete equipment by new, more productive equipment,
modernisation of obsolete equipment, and full and rational utilisation of existing
machinery and mechanisms.
To ensure technical progress in all branches of the national economy the
Soviet Union possesses a large body of engineers, scientists and skilled workers,
a highly-developed heavy industry and up-to-date engineering industry, and a
large-scale socialist agriculture. Technical progress in the U.S.S.R. is being
realised in conditions of increasing co-operation with the countries of the socialist
camp. The exchange of technical experience with other foreign countries is also
being extended.
It must not be forgotten that in the capitalist countries, too, technique is
not marking time. Under the impact of the arms drive, competition and the
pursuit of maximum profits by the capitalists, considerable advances in the
technique of production are taking place in a number of branches of the economy
in the capitalist countries, and there is technical progress there. The task is, by
utilising the advantages of the socialist system of economy, to surpass the
achievements of foreign science and technique. The struggle for technical
progress demands resolute overcoming of all manifestations of sluggishness,
conceit and complacency, and bold introduction into production of everything new
and progressive that is offered by science and by innovators of production in the
sphere of technical improvement.
Successful fulfilment of the basic economic task of the U.S.S.R. presupposes
as its decisive condition an uninterrupted growth in the productivity of labour in
all branches of the national economy. Communism, wrote Lenin, is the higher
productivity of labourcompared with that existing under capitalism of voluntary
class-conscious and united workers employing advanced technique. (V.I. Lenin,
A Great Beginning, Selected Works, 1950, Vol. II, Part 2, p. 231.) The tempos of
the growth of the productivity of labour in the U.S.S.R. are higher than in
capitalist countries. This has made it possible to catch up with the level of
productivity of labour in the advanced capitalist countries of Western Europe. But
the Soviet Union is still behind the U.S.A. in this respect. To will the victory in
economic competition with capitalism it is necessary not only to overtake but also
to surpass the advanced capitalist countries in the level of productivity of labour.

The Creation of the Material Production Basis of Communism

The material production basis of Communism which is being created in the

U.S.S.R. is large-scale machine production in town and country, based on
electrification of the entire country, complex mechanisation and automation, all-
round application of chemical processes, and wide application of atomic power for
the national economy.
 Lenin showed that, at the stage of communism, electrification of the entire
national economy would provide industry and agriculture with their technical
basis. Communism is Soviet power plus the electrification of the whole country.
(Lenin, The Work of the Council of Peoples Commissars. Report Delivered at the
VIII All-Russian Congress of Soviets, Selected Works, I2-vol. edition, Vol. VIII,
P.276.) This means that industry, transport, and agriculture will be switched over
to a new and higher technical basis, associated with electrification.
Electrification of the entire national economy is the characteristic feature of
the material production basis of communism. With the gradual transition from
socialism to communism, electrification is being undertaken on a huge scale. The
construction of the largest hydro-electric stations in the world is witness to this.
The socialist planned economy is securing the creation of a single high-
voltage network, connecting the numerous power-stations in the various
economic regions. The electric power-system of the U.S.S:R. is entering a new
phase of development. The coming into operation of the Kuibyshev and Stalingrad
hydro-electric stations, together with the transmission line linking these stations
with Moscow, the Urals and the Donbas, will mean a tremendous step forward in
the creation of a single mighty power-system on the territory of the European
part of the U.S.S.R. The grid system, i.e., the inclusion of separately-operating
power-stations in a single network, enhances the reliability of the power-
supplying the various parts of the country and improves the utilisation of power
capacities.
As a necessary condition for creating the material production basis of
communism, electrification of the entire national economy is inseparably linked
with the all-round mechanisation all labour operations, the automation of
production and use of chemicals, and the application of the latest technical
achievements.
The putting into effect of all-round mechanisation leads to the replacement
of manual labour by mechanised labour, to a rise in the cultural and technical level
of the workers and to an increase in the productivity of labour. All-round
mechanisation is the prerequisite for going over to automation of production and
of the direction of technological processes, and in the last analysis to the creation
of an automatic system of machinery in all branches of production.
All-round automation of production means a higher level of development of
large-scale machine production and constitutes a characteristic feature of the
material production basis of communism. It leads to the replacement of unskilled
labour by skilled, and provides the technical basis for finally abolishing the
essential distinctions between mental and physical labour. The transition from
partial automation of production processes to an automatic system of machines
ensures an enormous increase in the productivity of labour.

The creation of enterprises with complete complex mechanisation and automatic production
lines of machine tools, as well as of automatic factories, is among the achievements of the Soviet
engineering industry.
The automation of already-operating hydro-electric stations has been carried out in the
U.S.S.R. Hydro-electric stations under construction are all to be automatically operated. The
control of many power-stations is exercised from a distance by means of telemechanisms. In
metallurgical enterprises newly-devised rolling-mills, tube-mills and blooming-mills which are
mechanised, with automatic controls, are in use. Automatic control of locks is being introduced in
hydro-technical installations. Automatic factories for the production of concrete have been built, in
which the automation of production embraces all processes, beginning with the feeding-in and
weighing of the raw materials and ending. with the emergence of the finished concrete.
If, at the present time, automation of labour processes is no more than a herald of the new
technical basis of communism, in time this great achievement of science and technique will be
introduced into all branches of production.

A very great revolutionary transformation in the material production base is

taking place in connection with the wide application of atomic power in
production. The discovery of methods of obtaining and utilising the energy within
the atom is the highest point reached in the present stage of development of
science and technique. This discovery signifies the approach of a new scientific,
technical and industrial revolution which will by far exceed in importance the
industrial revolutions of the past. A practical solution of the problem of utilising
this new form of energy for peaceful purposes has been found in the U.S.S.R. One
of the most important ways of using atomic fuel is the production of electric
power by atomic power-stations. In the summer of 1954, constructed by Soviet
scientists and engineers, the first industrial power-station to use atomic energy,
with an effective capacity of 5,000 kw., was put. into service; it began to provide
current to industry and agriculture in the neighbouring. districts. Soviet scientists.
and engineers are working on the creation of industrial atomic power-stations
with a capacity of 50,000-100,000 kw.

Atomic power-stations enable a colossal amount of labour, fuel and

transport to be saved. The atomic industry of the U.S.S.R; provides science and
technique with radioactive elements which are already being used on an ever
wider scale in industry, agriculture and medicine. In industry, radioactive
substances are used to determine the quality of and reveal any defects in various
kinds of material, to facilitate automatic control, to assist in prospecting for
minerals, etc. By using these substances biologists are enabled to carry on
research into various aspects of the metabolism of animal and vegetable
organisms and to devise new methods of increasing the yield of crops and the
productivity of cattle. Radioactive equipment and preparations are successfully
used in medicine to identify and cure a number of diseases.
The application of atomic energy to the production of material wealth, the
further improvement of jet propulsion techniques, radio techniques, tele-
mechanics, etc., are opening up unprecedented possibilities for improving
production and raising labour productivity. All this is bringing about a vast
acceleration in economic development, and is one of the decisive factors in ,
providing the level of productive forces necessary for advancing to the higher
phase of communism.

The Means of Abolishing the Essential Distinction between

 Town and Country

The growth of the productive forces of socialist society will give rise to the
necessity for changes in relations of production also. In the higher phase of
communism relations of production will be based on uniform public or communist
property in the means of production. The transition to uniform communist
property requires all-round strengthening and further development of State
(public) and co-operative collective farm property, and also the gradual raising of
collective farm and co-operative property, in the future, to the level of public
property. On the basis of uniform communist property the essential distinction
between town and country will disappear.
The essential distinction between town and country, between industry and
agriculture, between workers and collective farm peasantry, at the socialist stage,
springs from the fact that industry is State (public) property, while agriculture has
group, collective farm property. There is a considerably higher degree of
electrification, mechanisation, automatisation and application of chemicals in
industry. Despite the genuine cultural revolution in the countryside, the cultural
and technical level of the rural population as a whole has not yet attained that of
the urban population.
The essential distinction between town and country is being eliminated in
the process of the building of communism. The decisive force in abolishing this
essential distinction is socialist industry. Only the further all-round development of
large-scale industry will enable the complex mechanisation of all branches of
agriculture to be completed.
Socialist industry performs its transforming role in relation to agriculture
primarily through the machine and tractor stations. These are the leading force in
developing collective farm output. As the most important industrial centres in
socialist agriculture, and as the vanguard of high agricultural standards, the
machine and tractor stations are serving collective farm production on an
increasingly extensive and complete scale. In this they have the aid of the latest
techniques, full-time qualified engineers and technical personnel. Through the
machine and tractor stations, the Socialist State guides collective farm
development in its gradual advance from socialism to communism. The State
farms are of growing importance as models of large-scale and highly mechanised
agriculture. In this way, State public property is playing an ever-increasing role in
the further growth of the whole of socialist agriculture.
Electrification is a powerful instrument for drawing town and country closer
together. The great new hydro-electric stations will supply enormous quantities of
electricity not only to industry, but to agriculture too. Large State power-stations
are the foundation of rural electrification. Alongside these, however, extensive
construction of small collective farm power-stations is in progress. The electric
machine and tractor stations, using electric tractors and electric combines, ensure
an extensive use of electric power in animal husbandry. Such stations are not only
a new source of power for agriculture, but also cultural centres.
During the period of gradual transition from socialism to communism, the
agricultural artel is the basic type of collective farm. Combining as it does
socialised economy as the main foundation of the collective farm, with the
personal subsidiary economy of the collective farmers, the agricultural artel
conforms in the greatest degree, under socialism, to the interests of the State,
the collective farms and the individual collective farmers. Enormous, but not yet
fully utilised reserves of labour productivity and of increased wealth for the
collective farms are still to be found in the artel. Aided by the M.T.S. and.
equipped with advanced techniques, the collective farms and successfully
developing their socially-owned economy, as the key to the creation of an
abundance of agricultural produce.
As the socially-owned economy of the collective farms grows stronger and
expands, the tasks of providing cultural and living amenities, and building
dwelling-houses are being consistently carried out. The socialised economy of the
collective farms will satisfy the varied personal needs of the collective farms ever
more fully. With an abundance of agricultural produce, the socialised economy of
the collective farms will be in a position to satisfy the needs of the State, the
collective farms, and also the personal needs of the individual farmers. When this
happens, it will no longer be profitable for the collective farmers to keep privately-
owned cows and small livestock, or to cultivate potatoes and vegetables on their
own household plots. Accordingly, the economic need to have a personal
subsidiary holding will disappear.
The prerequisites for the conversion of the agricultural artel into a highly
developed agricultural communethe highest expression of the collective farm
movementwill gradually come into existence with the further consolidation and
development of the material production basis of collective farm production.

The future communes will arise out of developed and prosperous

artels. The future agricultural commune will arise when the fields and farms
of the artel have an abundance of grain, cattle, poultry, vegetables, and all
other produce; when the artels have mechanised laundries modern kitchens
and dining rooms, mechanized bakeries, etc.; when the collective farmer
sees that it is more to his advantage to get meat and milk from the
collective farms meat and dairy department than to keep his own cow and
small livestock; when the woman collective farmer sees that it is more to her
advantage to take her meals in the dining room, to get her bread from the
public bakery, and to have her linen washed in the public laundry, than to
do all these things herself. The future commune will arise on the basis of a
more developed technique and of a more developed artel, on the basis of an
abundance of products. (Stalin, Report to the XVII Congress of the C.P.S.U.
(B), Works, Vol. XIII, P.360.

The process whereby the artel will grow into the commune will take place as
the necessary material prerequisites are created, and as the collective farmers
themselves become convinced of the need for it.
The abolition of the essential distinction between town and country does not
in any way mean a reduction in the role of the great towns. The planned location
of industry throughout the country, and the sating of industrial enterprises closer
to the sources of raw materials, are accompanied by the founding of new towns.
As centres of the highest development of material and spiritual culture, as centres
of large-scale industry, the towns will facilitate the levelling-up of living conditions
in town and country. The progressive role of the socialist town as the standard-
bearer and pioneer of the latest modern scientific and cultural achievements is
constantly increasing. Meanwhile the appearance of the old towns is being
fundamentally changed. The purpose of the socialist reconstruction of the towns is
to eliminate overcrowding and improve the health conditions of urban life by
providing green belts and utilising every modern municipal development.
Transport, too, has to play an important part in abolishing the essential
distinction between town and country. Transport binds the industrial centres and
agricultural districts into a single whole. The development of rail, road, water and
air transport, the transmission of electric power over great distances, the
improvement and widespread extension of radio and television, are all important
ways of bringing town and country, economically and culturally, closer together.
Thanks to these scientific and technical achievements, the rural population
acquires the same opportunities for enjoying all the advantages of culture as that
of the towns.
So long as there are two basic production sectors in the national economy,
State and collective farm, commodity production and commodity circulation are
inevitably retained and at the same time successfully utilised by the Socialist
State in building communism. Commodity production, and the economic
categories associated with it, will only wither away With the advent of uniform
communist property.
With the disappearance of commodity production, at the higher phase of
communism, the various forms of value and the law of value will also disappear.
The quantity of labour expended in the manufacture of a product will be
measured not in a roundabout way through the medium of the various forms of
value, as is the case in conditions of commodity production, but straight-forwardly
and directly by the quantity labour-time expended on production.

Labour-time will always remain, even when exchange value has

disappeared, the creative essence of wealth and standard of the cost
required to produce it. (K. Marx, Theories of Surplus Value, Russian edition,
1936, vol. III, p. 198.)

The friendly alliance of the workers and peasants will be increasingly

strengthened during the period of the completion of the building of socialist
society and gradual transition from socialism to communism. Both these classes
have the same root interests and the same goalthe building of communism. The
establishment of communist ownership of the means of production will form the
basis for the final obliteration of the boundaries between the working class and
the collective farm peasantry.
With the disappearance of the essential distinction between town and
country at the stage of communism, there will none the less be retained a certain
inessential distinction between them.
This arises from specific features of industrial and agricultural production
respectively, as for example the seasonal nature of agricultural work, connected
with the natural processes of growth and ripening of plants, the limited time
available for using agricultural machinery, etc.

The Means of Abolishing the Essential Distinction

between Mental and Physical Labour

For the advance to communism it is essential to attain such a cultural

growth of society as will provide for the full and all-round development of mans
physical and spiritual abilities.
After the abolition of the antithesis between physical and mental labour, the
problem has arisen of abolishing, in the course of communist construction, the
essential distinction between them which obtains in the phase of socialism. This
essential distinction is that the majority of workers are still on a lower cultural and
technical level than engineers and technicians; the majority of collective farmers
are on a lower level than agronomists.
Meanwhile technical improvements in industry and agriculture
electrification, complex mechanisation, application of chemicals, etc.increasingly
demand of the worker a high level, both of general education and also in the
specialised fields of engineering, technology, or agronomy. The level of
productivity of social labour cannot be attained essential for the transition to
communism without this. Hence follows the objective necessity for a rapid cultural
growth of society and for the abolition of the essential distinction between
physical and mental labour.
The essential distinction between physical and mental labour is being
abolished by raising the cultural and technical level of workers to that of
engineers and technicians, and of collective farmers to that of agronomists.
Socialist emulation, in which the overwhelming majority of the working
class and the collective farm peasantry participate, plays a tremendous part in
abolishing this distinction. Increasingly large numbers of workers are completely
mastering modern techniques and technological methods, while the number of
rationalisers and inventors is increasing. Broad strata of the workers are gradually
rising to the level of engineers and technicians.
As early as 1935, in characterising the Stakhanovite movement as a new
stage of socialist emulation, Stalin pointed out that it contained the seed of the
future cultural and technical advance of the working class and opened up the path
by which alone can be achieved those high indices of productivity of labour which
are essential for the transition from socialism to communism. (Stalin, Speech at
First All-Union Conference of Stakhanovites, in Problems of Leninism, 1953,
English edition, p. 667.) When the workers will have raised their cultural and
technical level to that of engineers and technicians, and collective farmers their
level to that of agronomists, a new and hitherto unprecedented rise in labour
productivity will be achieved. This will provide an abundance of all forms of
material wealth.
As the productivity of social labour grows, the economic conditions for the
gradual reduction of the working day will be created. This in turn will enable the
members of society to devote far more time and energy to acquiring knowledge
and culture, and to the harmonious development of all their physical powers and
mental abilities.
Universal compulsory polytechnical education is one of the conditions for
eliminating the essential distinction between mental and physical labour. Lenin
pointed out that poly-technical education must acquaint schoolchildren with the
theory and practice of the main branches of production. Widening the horizon of
the workers, equipping them with a knowledge of the principles on which modem
large-scale production rests, poly technical education will enable them freely to
choose their occupations.
The further cultural development of all members of society will be achieved
through universal compulsory poly technical education, secondary technical and
higher education, correspondence courses, and the creation at the place of work
of a broad network of various courses and personnel training-schemes for the
main occupations.
The development of the knowledge and culture of the workers and peasants
to the level of engineers, technicians, and agronomists will denote the abolition of
the distinctions between the workers and the peasants, on the one hand, and the
intelligentsia on the other.
Socialist society has achieved great successes in raising the well being of
the people. But in order to secure the all-round cultural growth of the working
people, necessary for the transition to communism, there must be a fundamental
improvement in housing conditions, and the real wages of manual and clerical
workers and real incomes of collective farmers must be considerably raised. This
can only be achieved by a further rapid growth of production and increased labour
productivity.
The all-round development of the productive forces and of culture will finally
dispose of unskilled and arduous manual labour. The old division of labour,
associated with the life-long attachment of workers to one particular occupation,
will disappear.
The elimination of the old division of labour does not in any way mean,
however, that communism denies the need for division of labour. The building of
communism demands the training of qualified and versatile specialists in all fields
of production, science, and technique.
All members of communist society will possess the engineering and
technical training necessary for operating the highest techniques and complex
productive processes. Besides producing material wealth they will be able to
engage in the arts and sciences too. The abolition of the essential distinction
between mental and physical labour does not mean that every distinction
between these two forms of work will disappear. A certain distinction, although of
an inessential kind, connected with the specific differences between the fields of
production, science and culture will none the less remain.
The communist upbringing of the working people is of enormous importance
for the transition to communism. Its fundamental task is the education of a new
man, for whom work will become a prime necessity of life. In depicting labour in
communist society, Lenin wrote:

Communist labour in the narrower and stricter sense of the term is

labour performed gratis for the benefit of society, labour performed, not as
a definite duty, not for the purpose of obtaining a right to certain products,
not according to previously established and legally fixed rates, but
voluntary labour, irrespective of rates, labour performed without expectation of
reward, without the condition of reward, labour performed out of a habit of
working for the common good, and out of a conscious realisation (become a
habit) of the necessity of working for the common good-labour as the
requirement of a healthy organism. (Lenin, From the Destruction of the
Ancient Social System to the Creation of the New, in Selected Works, 1950,
English edition, Vol. II, Pt. 2, p. 339.)

Communism presupposes a high level of public spirit among the members

of society. The seeds of the new communist relations already exist in socialist
society in the attitude towards labour and public property, and in relations
between man and man. In time, the observance of communist principles will
become the natural and customary behaviour of a highly educated and cultured
people. But it must not be forgotten that in socialist society the survivals of
capitalism in the consciousness of man are as yet far from outlived that these
survivals exist because mans consciousness lags behind his being and because
the reactionary forces of the bourgeois world in every way maintain and revive
them. Hence follows the need to overcome the survivals of capitalism in the
consciousness of man and for an enormous development in the cultural level and
communist public spirit of the mass of the people. Of the greatest importance
throughout the period of transition from socialism to communism is the struggle
against remnants of the old attitude to labour and social property; against
bureaucracy and survivals of the past in modes of life and in morals and against
religious prejudices. Persistent and tenacious political and educational work
among the masses the communist upbringing of the entire people, are essential
to overcome these survivals.

The transition to the Communist Principle From Each

According to his Ability, to Each According to his Needs

The conditions for giving effect to the Communist principle: From each
according to his ability, to each according to his needs are brought into being
gradually, as production increases and on this basis an abundance of articles of
consumption is attained, as a uniform Communist form of property is established
and a level of culture and public spirit among the members of society appropriate
to communism is achieved. This principle means that in communist society each
will work according to his abilities and will receive articles of consumption in
keeping with the needs of a culturally developed individual.
The Socialist State creates the prerequisites for the higher phase, of
communism by fully utilising the economic laws of socialism. In accordance with
the requirements of the basic economic law of socialism, socialist production is
developed and the living standards of the people rise, at steady and rapid rates.
The use made of the law of planned development of the national economy
constantly increases, and the methods of socialist planning are perfected. The
national economic plans, drawn up for a prolonged period, prescribe the actual
methods of creating the material production basis of communism, the ensuring of
a productivity of labour higher than exists under capitalism.
In the transitional period from socialism to communism such economic
instruments of planned guidance of the national economy as money, credit, trade,
and economic accounting, which are bound up with the existence of the law of
value, must be fully utilised in order to ensure a marked increase in social wealth.
A steady rise in the material and cultural level of the working people is being
achieved by the consistent application of the economic law of distribution
according to work. The growth of labour productivity is accompanied by price
reductions for manufactured and agricultural commodities. The real wages of
manual and clerical workers, and the incomes of collective farmers, are being
systematically raised. The working people are able to obtain increasing quantities
of foodstuffs, clothing, household goods, etc. The successful fulfilment of the
programme of big advances in agriculture and increases in the production of mass
consumption goods, which is being carried out by the Communist Party and the
Soviet State, is of very great importance in providing the prerequisites for the
transition to communism.
In the U.S.S.R. the task has been posed of providing satisfaction of mans
scientifically ascertained food requirements.

We must set before ourselves the task, said N. S. Khrushchev of

achieving a level of food consumption, based on scientifically tested
standards of nutrition, necessary for the all-round and balanced development of
a healthy person. (Khrushchev, Measures for the Further Development of
Agriculture in the U.S.S.R., Report to the Plenum of the C.C. of the C.P.S.U., 3
September, I953.)

A decisive increase in the. production of material wealth means that the

wage level of manual and clerical workers, and the level of incomes of collective
farmers, provide for an ever fuller satisfaction of the growing material and cultural
requirements of the working people. With the growth of abundance of products
there will come into being the prerequisites for the transition from distribution
according to work to distribution according to needs. Throughout the period of
gradual transition from socialism to communism great importance will attach to
the development of trade, through which a growing mass of consumer goods will
be distributed. Improvement of Soviet trade will build up that extensive
machinery which will be used, at the higher phase of communism for the direct
distribution of products according to needs, without commodity an money
circulation.
Communism will ensure the all-round satisfaction of the varied personal
requirements of the members of society, both by multiplying the quantity of
articles of consumption and household use which become the personal property of
individuals, and also by developing the social forms in which the needs of the
population are met (cultural institutions and amenities, housing, sanatoria,
theatres, etc.).
The Soviet Union is the first country in the world to have built socialism, and
to be today successfully raising up the edifice of communism. The countries of
Peoples Democracy, using the experience of the Soviet Union, are carrying out
the building of socialism, the first phase of communist society. Inevitably, the
development of mankind will move along the road to communism. In tracing out
the prospects of communist construction, Lenin wrote:

If Russia becomes covered by a dense network of electric power-

stations and powerful technical installations our communist economic
development will become a model for a future socialist Europe and Asia.
(Lenin The Work of the Council of Peoples Commissars. Report delivered at
the 8th All-Russian Congress of Soviets, Selected Works, 12-vol. edition,
vol. VIII, p. 278.)

The great example of the Soviet Union, advancing to the higher phase of
communism, and of the countries of Peoples Democracy, building socialism,
shows the peoples of the entire world the road to liberation from capitalist
slavery. Each new step taken by Soviet society towards communism confirms,
more clearly the superiority of socialism over capitalism and implants in the
working people of all countries confidence in the historical doom of capitalism and
triumph of communism.

BRIEF CONCLUSIONS

(1) Socialism and communism are two phases of development of the

communist social formation. Communism is the higher phase. It is characterised
by a higher level of productive forces in comparison with socialism, uniform public
communist property in the means of production, the absence of classes and class
distinctions, the absence of essential distinctions between town and country and
between physical and mental labour. From being a mere means of life, labour at
the stage of communism will become a prime necessity of life for everybody. On
the basis of an enormous rise in the level of productive forces and the
productivity of social labour, an abundance of articles of consumption will be
achieved and the transition effected to the communist principle: From each
according to his ability, to each according to his needs.
(2) For the transition to communism it is necessary to solve the basic
economic task of the U.S.S.R., that of overtaking and outstripping the most
advanced capitalist countries economically, that is, in production per head of
population. The material production basis of communism must be brought into
being, sufficient to provide an abundance of objects of consumption. The essential
distinction between town and country must be abolished, on the basis of the
creation of uniform communist property in the means, of production. This in turn
requires all-round strengthening of the role of State public property in the means
of production in the national economy as a whole, and in agriculture in particular,
and the strengthening and development also of the socially-owned economy of
the agricultural artel. The transition to communism further requires such a
cultural development of society as will abolish the essential distinction between
mental and physical labour, and will raise the educational level and technical
knowledge of all workers to the level of engineers, technicians, and agronomists.
(3) The successful achievement of the gradual transition from socialism to
communism in the U.S.S.R. is being brought about by the millions of working
people, under the leadership of the Communist Party and the Soviet State, guided
in their work by the knowledge and use of the objective laws of economic
development. In socialist society, the seeds of communism are already present in
production, in attitudes to work and to social property, and in relations between
man and man. Communism is being built in the course of a decisive struggle
against the survivals of capitalism in the consciousness of man. A necessary
condition for the liquidation of these survivals is the communist education of the
working people.
(4) The all-round strengthening of the mutual co-operation and fraternal
friendship of the countries in the socialist camp is a decisive condition for the
successful building of communism in the U.S.S.R. and of socialism in the Peoples
Democracies. The building of communism in the U.S.S.R. is of enormous
international importance.
C. THE BUILDING OF SOCIALISM IN THE
COUNTRIES OF PEOPLES DEMOCRACY
 CHAPTER XLI

THE ECONOMIC SYSTEM OF THE PEOPLES

DEMOCRACIES IN EUROPE

The Prerequisites of the Peoples Democratic Revolution

The peoples democratic revolution in the countries of Central and South-

eastern Europe had its way prepared by the whole course of development of
capitalism and the class struggle of the working class and working people of these
countries, by the entire course of the world liberation movement. Capitalist
relations predominated in the economies of these countries, with the exception of
Albania. Czechoslovakia was a developed industrial country in which light industry
working for export predominated; Poland and Hungary had a medium level of
development of industry, with agriculture playing the predominant role; Rumania
and, still more, Bulgaria, were agrarian countries with poorly developed industry.
Albania was an economically backward country with important survivals of the
patriarchal-tribal system.
During a long period the countries of Central and South-eastern Europe
underwent oppression by imperialist powers. The landlords and big bourgeoisie
who were in power were dependent on foreign finance capital and carried out its
will. Exploitation of the working class had reached extreme limits. The
development of capitalism in the majority of these countries had been
accompanied by the retention of considerable survivals of feudal and serf
relations. The bulk of the peasantry, constituting the majority of the population,
suffered from land hunger and were poverty-stricken. All this made revolutionary
the working class and broad masses of the peasantry.

In the majority of the countries of Central and South-eastern Europe, before the revolution,
an enormous section of the land was in the hands of big property-ownerslandowners and
capitalists. In Poland, peasant farms of up to 12 acres, which represented about two-thirds of all
farms, held less than 15 per cent of the land; landowner and capitalist farms of over 125 acres,
which represented 0.9 per cent of the total number of farms, held about one-half of the land. In
Hungary, farms of up to 141 acres, which represented 84 per cent of all farms, owned one-fifth of
the land; farms of over 125 acres, which represented 0.9 per cent of all farms held nearly half the
land, In Rumania, farms of up to 121 acres included three-quarters of the total number of farms,
but held 28 per cent of the land, and in Czechoslovakia the figures were 70.5 per cent and 15.7
per cent. Landlord landownership was abolished in Bulgaria in the main as a result of the Russo-
Turkish War of 1877-8. A considerable part of the land in Bulgaria before the revolution of 9
September, 1944, was concentrated in big kulak-type, capitalist holdings, while the bulk of the
peasantry owned only a little land. Thus, holdings of a dozen acres or less, which made up two-
thirds of all holdings, comprised only 30 per cent of the land.
Capitalist monopolies dominated the industry of the countries of Central and South-eastern
Europe, and foreign capital held the key positions. In pre-war Poland, nearly two-thirds of capital
investments in industry belonged to foreign capital. In pre-war Rumania foreign capital controlled
91.9 per cent of the total capital investments in the oil industry. In Hungarian industry 40 per cent
of all capital invested in 1937 belonged to foreign firms. In Bulgaria, in 1937, about one-half of the
capital investments in large-scale industry, and about two-thirds of the capital investments in
transport companies, were in the hands of foreign firms.

During the second world war the countries of Central and South-eastern
Europe fell under the yoke of German imperialism, which drained away their
entire wealth. The land-owners and monopolist bourgeoisie became the agents of
German fascism and completely isolated themselves from the people. Class and
national contradictions were sharpened to the extreme. The working masses
under the leadership of the working class, and headed by the Communist and
Workers Parties, waged a stubborn struggle for liberation from fascist slavery,
against the German invaders, and the landowning and capitalist cliques, which
had betrayed the national interests of their countries. In the struggle of the
working people for their national and social liberation the influence and prestige of
the Marxist-Leninist parties of the working class grew enormously.
The Soviet Union, in the course of its victorious struggle against Hitlerite
Germany, liberated the peoples of the countries of Central and South-eastern
Europe from the German fascist yoke. The masses in these countries overthrew
the Hitlerites hangers-on and were enabled to go forward to build their own life
on new, democratic principles.
In this way, the peoples democratic revolution commenced.

The Character of the Peoples Democratic Revolution

The chief motive forces of the peoples democratic revolution are the
working class and the peasantry, under the leadership of the former. During the
struggle against fascism in the countries of Central and South-eastern Europe, a
national front had been formed which united all the anti-fascist forces, including,
besides the working class and the peasantry, the urban petty bourgeoisie and part
of the middle bourgeoisie. The revolution eliminated the political rule of the
landowners and monopolist bourgeoisie. Peoples democratic governments came
into being, based on an alliance of the working class and the peasantry. The
foundations of a State of a new typethe Peoples Democratic Republicwere laid
down. Together with the Communist and Workers Parties, in a number of
countries the petty bourgeois and bourgeois parties who had. joined the national
front of struggle against fascism participated in the government and machinery of
State.
The peoples democratic revolution was in the first place anti-imperialist,
since it liberated the enslaved peoples from the imperialist yoke and gave them
national independence. In the second place, it was anti-feudal, since it eliminated
feudal survivals in the economy and in the political systems.
The anti-imperialist, anti-feudal revolution is a bourgeois-democratic
revolution of a new type, typical for the historical circumstances of the second
phase of the general crisis of capitalism. It does not have as its immediate aim
the overthrow of capitalism and establishment of the dictatorship of the
proletariat, and in this respect belongs to the category of bourgeois-democratic
revolutions, but in its content it is broader and deeper than the usual bourgeois-
democratic revolution. In the first place, every anti-imperialist and anti-feudal
revolution, spearheaded as it is against imperialist oppression, leads to a
weakening of the world imperialist system as a whole, shaking its foundations. In
the second place, the victory of the anti-imperialist, anti-feudal revolution creates
most favourable conditions for going over to the socialist revolution.
The victory of the anti-imperialist, anti-feudal revolution, led by the working
class, means the establishment of a revolutionary-democratic dictatorship of the
proletariat and peasantry, which advances the revolution, bringing about a direct
transition to a second stage, the socialist revolution. Thus, the anti-imperialist,
anti-feudal revolution and the socialist revolution are links in a single chain, two
stages in one revolutionary process.
In Its first stage the peoples democratic revolution carried out, in the main,
the tasks of the bourgeois-democratic revolution; the volume of these tasks, and
the consistency and methods with which they were carried out, depended on the
historical development and the concrete situation as it had come about in each
country.
In all the countries of peoples democracy a broad democratisation of social
and political life was carried out. Where it existed the monarchy was abolished. In
the majority of the countries concerned, what was most important was
revolutionary agrarian transformations. Landed estates with their equipment and
animals were confiscated and for the most part distributed among the land-
hungry peasants and labourers. The land passed into the possession of the
peasantry as private property. On part of the confiscated estate land State farms.
were set up. As a result of the revolutionary agrarian changes the landlord class
was abolished, and the position of the working peasantry considerably improved.
The bulk of the poor peasantry; who had received land, rose to the level of middle
peasants. The middle peasant became the central figure in agriculture. The
relative importance of kulak holdings declined markedly.

In Rumania before the revolution poor-peasant and middle-peasant holdings occupied less
than half the land, but in 1948 they covered 80.7 per cent of it. In Hungary poor- and middle-
peasant holdings received, as a result of the agrarian changes about five million acres of land;
whereas before the revolution these holdings included 40.4 per cent of all the land, in 1947 they
included 70.7 per cent. In Poland landless and land-hungry peasants, together with the middle
peasants, received more than 15 million acres, owing to the agrarian changes and to the
acquisition of the Western Territories. In Bulgaria, where there was no large-scale landlord land-
ownership, the extent of anti-feudal tasks (abolition of landownership by the monasteries and the
church, etc.) solved by the revolution in the carrying-out of the agrarian reform was less than in
the other countries of peoples democracy, so that this reform bore to a considerable degree an
anti-kulak character.

The revolutionary agrarian changes were carried out with the active
participation of the broad peasant masses, led by the working class, in conditions
of acute class struggle. Reactionary forces hacked by foreign imperialists offered
fierce resistance to the agrarian changes and tried in every way to disrupt them.
The agrarian changes had very great consequences, both economic and political.
With the abolition of large-scale land-ownership the reactionary forces were
deprived of a very important material base. The liquidation of landlord land-
ownership did away with the survivals of feudal exploitation of the peasantry. The
allotment of land to the land-hungry and landless peasants drew them to the side
of the peoples rule. As well as being the culminating task of the bourgeois-
democratic revolution, the agrarian changes at the same time were one of the
preconditions for going over to socialist construction.
As it carried out its anti-feudal tasks, the peoples democratic revolution
passed over more and more into its second stage, grew over into the socialist
revolution. Though the main content of the revolutions first stage was the
carrying through of changes of a general democratic character, nevertheless the
working class, as the leading force in the revolutionary-democratic dictatorship of
the proletariat and peasantry, could not restrict itself to these changes and carried
through a series of measures which prepared the transition to the second stage of
the revolution. Among such measures were: establishment of workers control
over production; confiscation of the property of war criminals and of capitalists
who collaborated with the occupying forces, and of the monopolist bourgeoisie
closely connected with them which resulted in the weakening of the economic
position of the bourgeoisie and the passing into the hands of the peoples State of
part of large-scale industry; establishment of a State monopoly in trade in the
most important commodities and State control of foreign trade; and several other
measures. As the revolution progressed the nationalisation of the means of
production spread further and further. The effect of all this was to weaken the
position of the bourgeoisie as a whole and to strengthen that of the working class.
The nationalisation of large and medium industry, transport, means of
communication, etc., was carried through in the European Peoples Democracies
in several stages. Nationalisation began as early as 1945-6 and was in the main
completed by 1947-8.
As the transition progressed from the solving of general democratic tasks to
the solving of the tasks of the socialist revolution, the struggle between the
working class and the counter-revolutionary bourgeoisie inevitably grew more
acute. The bourgeoisie, relying upon the economic power which it still retained,
and upon the support of foreign capital, making use of its agents in the State
apparatus and to some extent in the Government itself, tried by every means to
frustrate the measures of the peoples democratic power and recover its economic
and political domination. The working class, after consolidating its forces by
uniting the workers parties on the basis of Marxism-Leninism, welded the
peasantry and other strata of the population around itself. In the course of the
peoples democratic revolution the State organs were purged of counter-
revolutionary bourgeois-landlord elements. The old bourgeois State machine was
finally broken up and replaced by a new State apparatus answering to the
interests of the working people. The masses gave a resolute rebuff to the
attempts of the bourgeoisie to restore alien imperialist oppression. As a result of
the rout of the bourgeoisie the leading role of the working class in the State was
conclusively strengthened. All these tasks had been disposed of in the majority of
the European Peoples Democracies by 1947-8. The State system of peoples
democracy began successfully fulfilling the functions of the dictatorship of the
proletariat, Peoples Democracy became one of the forms of the proletarian
dictatorship.

Embodying the rule of the working people under the leadership of

the working class, said G. M. Dimitrov, the Peoples Democracy, in the
existing historical situation, as is already proved by experience, can and
must successfully fulfil the functions of the dictatorship of the proletariat for
the liquidation of the capitalist elements and the organisation, of a socialist
economy. (Dimitrov, Political Report of the Central Committee of the
Bulgarian Workers Party, given at the Fifth Party Congress, Sofia, 1948,
Russian edition, p. 73.)

Thus the process of growing-over from a revolution bourgeois-democratic in

character into a socialist revolution, the process of gradual transition from one
stage of peoples democracy to another, was completed: from the revolutionary-
democratic dictatorship of the proletariat and peasantry to peoples democracy
carrying out the functions of the dictatorship of the proletariat.
Consolidation of the hegemony of the proletariat and of the leading role of
the Communist Parties in the course of these democratic transformations was the
decisive prerequisite for transition to the socialist revolution and the dictatorship
of the proletariat and also determined the nature of this transition. The
establishment of the dictatorship of the proletariat took place not as the act of a
single moment, not by the overthrow of the existing power, but by a gradual
strengthening of the proletariats position, by the winning to its side of the great
mass of the working people, by putting into effect a number of measures directed
towards the liquidation of the economic domination of the bourgeoisie. Among
these measures the most decisive was the nationalisation of large-scale capitalist
enterprises and banks.
In carrying out the tasks of the socialist revolution, the peoples democratic
governments converted the factories and mills, mines and power-stations into
public, socialist property. Transport and communications, mineral resources and a
part of the land, the banks, foreign trade and internal wholesale trade were also
nationalised. Thus, the peoples democratic governments, led by the working
class, starting from the requirements of the economic law of obligatory
correspondence between production-relations and the nature of the productive
forces eliminated the economic rule of the bourgeoisie and took possession of the
key positions of the national economy. Thereby were created the conditions
needed for transition to the socialist transformation of society, As a result of the
nationalisations, production relations in industry were brought into harmony with
the socialised character of production: the basic means of production became the
property of the whole people in the person of the peoples democratic State. The
peoples democracies entered the transitional period from capitalism to socialism.
The formation of the peoples democratic power and the transition period
from capitalism to socialism were distinguished by certain special features in the
case of the German Democratic Republic, created by the democratic forces of the
German people after the splitting of Germany into two parts carried out by the
Western Powers. There are two states at present on the territory of Germanythe
German Democratic Republic and the German Federal Republic, and these
embody different social and economic formations.
In the German Democratic Republic power is in the hands of the working
class, in alliance with the working peasantry. The alliance of the workers and the
peasants is the decisive force in the political and economic life of the Republic.
The State power relies on a bloc of anti-fascist, democratic parties and
organisations, the policy of which is determined by the tasks of the struggle to
create a unified democratic and peace-loving Germany. The leading role in this
bloc belongs to the party of the working class, the Socialist Unity Party of
Germany. By abolishing the economic rule of the Junker landlords and the
monopolies, the German Democratic Republic has torn up the social roots of
militarism and fascism.
It was a great historical event in the life of the German people when the
working people of the German Democratic Republic took the road of socialist
construction. The building of socialism in the German Democratic Republic
answers to the interests of all the working people of Germany. The leading place
in the Republics economy is held by socialised property in the means of
production, on which the public enterprises in industry, the public estates in
agriculture, the machine and tractor stations and the agricultural producers co-
operatives are based. Together with the principal, socialist sector in industry,
transport, trade and agriculture there are numerous individual enterprises of
simple commodity producerspeasants and artisansand also medium and small
capitalist enterprises. The German Democratic Republic takes as its primary task
the struggle to reunite Germany on peace-loving democratic foundations.
Among the countries which broke away from the capitalist system during
the Second World Wars Yugoslavia. In place of the former Yugoslavia with its
reactionary monarchist regime, based on cruel exploitation of the working people
and national oppression, there arose as a result of the peoples revolution the
Federal Peoples Republic of Yugoslavia, in which power is in the hands of the
working class and the peasantry and national inequality has been abolished.
Socialised ownership of the main means of production prevails in Yugoslaviain
the fields of large-scale and medium industry, transport, banking, wholesale trade
and the overwhelmingly greater part of retail trade. In spite of the efforts made
by imperialist forces, Yugoslavia has maintained its national independence and
resisted the attempts of foreign capital to penetrate its economy.
At the present stage of world development, when a mighty camp of
socialism exists, peoples democracy constitutes a way of revolutionary socialist
transformation of society. The historical experience of the Soviet Union and the
countries of peoples democracy confirms Lenins teaching that, while there must
be unity on the main and basic question of securing the victory of socialism in
various countries, different forms and methods of solving specific problems of
socialist construction may be applied, depending on the historical and national
peculiarities of particular countries.
Lenin wrote: All nations will reach socialism; this is inevitable. But not all
nations will reach socialism in the same way; each will introduce a special feature
in the form of democracy it adopts, in the form of the proletarian dictatorship, and
in the rate at which it carries out the reconstruction of the various phases of social
life. (Lenin, A Caricature of Marxism and Imperialist Economism, Collected
Works, English edition, Vol. XIX, pp. 256-7.)

Forms of Economy and Classes

The economy of the European peoples democracies is a transitional

economy containing more than one form. There are to be found in it three basic
forms of economy or sectors of the national economy: socialist, small commodity,
and capitalist.
The socialist form of economy includes: (1) the industrial enterprises,
transport, the banks, trading establishments, agricultural estates machine and
tractor stations based on State, or public ownership; (2) various types of
enterprises based on co-operative property-industrial, consumer, credit,
agricultural, marketing and supply, and agricultural producers co-operatives.
In all the European peoples democracies, the socialist sector occupies the
predominant place in the economy. The major part of the national income is
produced in this sector.
All banking operations, industry, transport, all internal wholesale trade and
the main part of retail trade is in State hands. A State monopoly, of foreign trade
has been set up. In agriculture, however, with the exception of Bulgaria, the
socialist form of economy does not yet occupy a predominant place.
Occupying a predominant position in the national economy and embracing
the key economic positions the socialist form of economy in each of the European
peoples democracies, is the determining force in their economic development and
is growing stronger from year to year.

In recent years the socialist form of economy represented in the various countries:
In the national income: Poland 76 per cent, Czechoslovakia 92 per cent (in 1953), Hungary
81 per cent (in 1954), Rumania 70 per, cent (in 1952), Bulgaria 87 per cent (in 1954), Albania
approximately 70 per cent (in 1952).
In industry: Poland 99.5 per cent (in 1953), Czechoslovakia 99.6 per cent (in 1953),
Hungary 97 per cent (in 1954), Rumania 99 per cent (in 1954).
In wholesale trade: 100 per cent in all these countries.
In retail trade in 1954: Poland 96 per cent, Czechoslovakia 99.8 percent, Hungary 99.7 per
cent, Rumania 76 per cent, Bulgaria 99.5 per cent.
In ,the German Democratic Republic the proportion of the socialist sector in industry
amounted in 1953 to 85.5 per cent in wholesale trade to 94.5 per cent and in retail trade turnover
to about 70 per cent.

In the socialist sector the exploitation of man by man has been eliminated
and the character of labour has been changed. From being labour for the
capitalists, it has become labour for oneself and for the whole of society. Because
of the changed economic conditions in the socialist sector, the economic laws of
capitalism which express the relations of exploitation and anarchy of production
have quitted the stage. The laws of socialist economy have come into being and
have begun to operate: the basic economic law of socialism, the law of planned,
proportional development of the national economy the law of distribution
according to work done, and others. A continuous growth of socialist production is
taking place, based on the highest techniques, with the aim of securing the
victory of socialism and satisfying the growing needs of the working people.
Socialist production is carried on in a planned way, based on the law of planned,
proportional development of the national economy. Planning methods are being
constantly improved.
The existence in the economy of the peoples democracies of two forms of
socialist property, as well as of small commodity economy, leads to the operation
of the law of value and of the economic categories associated with it: money,
trade, credit, etc. The law of value is not the regulator of socialist production but
does influence it. This influence is taken into account by the peoples democratic
States in planning prices, carrying out economic accounting, etc. Trade, money,
credit and other economic categories, associated with the law of value, are being
successfully utilised as instruments for the building of socialism.
In so far as the socialist sector plays a leading role in the economy of these
countries, the basic economic law of socialism, the law of planned development of
the national economy and the other economic laws of socialism, are exercising an
increasing influence on the development of the national economy as a whole. As
socialist relations of production continue to grow, the sphere of operation of the
economic laws of socialism is steadily extending.
The small commodity economy includes the farms of the individual working
peasants and also small handicraft production based on the personal labour of its
owners. In some countries, particularly in Albania, survivals of patriarchal
relations still exist in the countryside. Individual peasant farms produce the bulk
of agricultural produce; the middle peasants occupy a predominant place among
them. Small commodity peasant economy based on private ownership of the
means of production inevitably gives birth to elements of capitalism.
Planning in the European peoples democracies does not yet embrace
directly the entire national economy. Production in the small commodity sector is
regulated by the operation of the law of value. However, the peoples democratic
governments, relying on the law of planned development of the national economy,
exercise a regulating influence on small commodity production through trade,
State purchases, prices, credit, taxes, etc.
The capitalist economy includes the kulak farms, private trading
establishments and private industrial enterprises based on the exploitation of
hired labour.
The law of value is the economic regulator in the capitalist sector. Within the
confines of this sector the law of surplus-value still operates, but its sphere has
been greatly reduced. The size of capitalist enterprises and their opportunities for
exploiting hired labour are strictly limited. Among the methods whereby the
capitalist elements are restricted are high rates of taxation and a number of
measures to curb market fluctuations. The working class and the peasantry are
the main classes in the peoples democracies. But alongside the toiling classes,
there are the bourgeoisie in the form of the kulaks and also the private
entrepreneurs in trade and industry.
The close alliance of the working class and the working peasantry, under the
leadership of the former is the vital condition for the existence and development
of the social and State system of the peoples democracies. This alliance is
directed against capitalism and for the building of socialist society.

The pivot and motive force of our revolutionary transformation was,

and is, the alliance of workers and peasants led by the working class. In the
course of decades the working class in its struggle against capitalism and
fascism has consolidated its alliance with the basic masses of the working
peasantry. Widening, consolidating and deepening this alliance is the main
principle in the policy of the peoples government and a guarantee of its
strength and successes. (Bierut, Report of the Central Committee of the
Polish United Workers Party to the Second Party Congress. For a Lasting
Peace, For a Peoples Democracy, March 19, 1954.)

The basic contradiction in the economy of the peoples democracies, during

the transitional period from capitalism to socialism, is between growing socialism
and the beaten, but not yet abolished, capitalism, with its roots in small
commodity production.
The building of socialism is taking place in conditions of intense class
struggle. The opposition of the classes which are dying is manifested in the hostile
activity of the remnants of the routed anti-popular political parties, the
nationalist, left and right-wing deviations in the Communist (Workers) Parties in
the wrecking, sabotage and diversive acts of imperialist agents. The Communist
(Workers) Parties, together with the masses of the people, are unmasking the
elements hostile to socialism and securing victory for the policy of building
socialism.
The State in the peoples democracies makes objective economic laws the
starting-point of its policy, and uses them to achieve the complete victory of the
socialist forms of economy over the capitalist.
Guided by Marxist-Leninist teachings on the transitional period from
capitalism to socialism, the peoples democratic governments are consolidating
the alliance of the working class and the peasantry, and conducting a struggle
against the capitalist elements in town and country by restricting and squeezing
them out. The peoples democratic States make use of market relations in every
possible way in order to develop the trade bond between industry and agriculture.
In carrying out socialist industrialisation, they are broadening the production bond
between town and country and are following the policy of gradually developing
co-operation in production among the peasant farms on a voluntary basis.
Thus, the same fundamental principles which determined the new economic
policy in the U.S.S.R. underlie the building of socialism in the peoples
democracies: As has already been noted, however, these principles are being
applied there with due allowance for the considerable historical peculiarities of
each countrys national, economic and political development.
The building of socialism in the peoples democracies is being undertaken in
considerably more favourable historical conditions than those in which it took
place in the U.S.S.R., the first country where socialism triumphed. In creating the
economic and cultural foundations of socialism, the peoples democracies are
extensively utilising the very rich experience of socialist construction accumulated
by the Soviet Union, and are able to rely on the strength of the whole camp of
socialism and on the increasing mutual aid between all the countries that make up
this camp. This enormously facilitates the solution of the problems of socialist
construction.
With the resolute support of the Soviet Union, the plans for imperialist
intervention against the European peoples democracies were frustrated. These
countries have thereby been spared a prolonged civil war and the need to carry
out the policy of war communism. This has enabled them to restore their
economies in the shortest possible time and to set about the socialist
reconstruction of the national economy.

Socialist lndustrialisation

Socialist industrialisation is a very important prerequisite for, building

socialism in the peoples democracies; it is put into effect with due allowance for
the peculiarities of each country and its role in the international division of labour
within the socialist camp. Through industrialisation these countries create the
material, production basis for socialism and ensure a sound foundation for a
steady growth in production and the peoples welfare.

Before the second world war the share of industrial output in that of agricultural and
industrial output combined was: Poland 47.6 per cent, Hungary 53 per cent, Rumania 40 per cent,
Bulgaria 33.8 per cent, Albania 18.3 per cent; 65 per cent of the gainfully employed population
were engaged in agriculture and about 17 per cent in industry in Poland, 78 and 7 per cent
respectively in Rumania, 79.9 per cent in agriculture and 8 per cent in industry and handicrafts in
Bulgaria. With regard to the level of national income, volume of production and consumption of
industrial output per head of population and a number of other indices, these countries lagged
considerably behind the more developed, industrial countries. Thus in Poland, consumption of
ferrous metals per head, of population was little more than one-tenth of that in Great Britain and
hardly one-eighth of that in Germany; electricity consumption was approximately one-seventh of
that in Britain and Germany and one-fifth of that in France.

All these countries have completed the period of restoring their economy,
which suffered the effects of the war and fascist, pillage. Relying on the aid of the
Soviet Union and utilising the advantages of socialist planned economy, the
peoples democracies disposed of the tasks of reconstructing their, economies in a
very short period, two or three years.
The successful restoration of their national economy provided a stable basis
for its socialist reconstruction. The central task of their first Five-Year Plans for
developing the national economy (in Poland, the Six-Year Plan) was the laying of
the foundations of socialism. Socialist industrialisationthe development of large-
scale socialist industry, and above all heavy industrywas the central feature of
these plans. At the same time the process of industrialisation in each individual
country has its own special features, depending on the level of development and
structure of industry and on historical, natural, and economic conditions.
The accumulation taking place in the socialist sector is the main source of
industrialisation in the countries of peoples democracy. A part of the savings of
the working people, in the form of State loans, is also utilised for industrialisation.
The expropriation of part of the incomes of the capitalist elements in town and
country, primarily by means of progressive taxation, provides further resources
for this purpose.
A systematic increase in the productivity of social labour, by the introduction
of advanced techniques and better organisation of labour, is a decisive factor in
the growth of socialist accumulation. Socialist emulation is a powerful motive
force in the growth of labour productivity. The bulk of the workers take part in
socialist emulation. Advanced workers are successfully applying in their work the
production experience accumulated in the U.S.S.R. and in other countries of the
socialist camp. The utilisation of the economic law of distribution according to
work, the application of various forms of piece-rates, and the fight against wage
levelling are of primary importance in securing a steady growth of labour
productivity. Of great importance for increasing accumulation in socialist
production is the use of the law of value, strengthening in every way the regime
of economy and consistently introducing economic accounting.
Klement Gottwald wrote:

Have we not had, do we not still have, quite a number of economic

and political workers among us who have forgotten about the operation of
the law of value, and for whom as a consequence questions of economic
accounting and profitability of enterprises, the question of costs, prices,
etc:, have ceased to play any role? Is it not clear that such a mistaken
attitude causes great losses to our economy and hinders our advance
towards socialism? I think that this much is clear; and that it must cause all
our people, particularly those in managerial and responsible positions
constantly to observe a regime of economy in production and in the sphere
of State purchases and sales. (Gottwald, The Historic XIXth Congress of the
Communist Party of the Soviet Union and our Tasks, For a Lasting Peace,
For a Peoples Democracy, November 7, 1952.)

Socialist industrialisation in the peoples democracies is being carried out in

different and more favourable historical conditions from what was the case in the
U.S.S.R.; and it has important special features.
The Soviet Union was the only country building socialism, and effected its
industrialisation without any outside assistance, relying exclusively on its internal
resources. The peoples democracies, on the contrary, are industrialising their
economy when a powerful socialist camp exists. In the course of socialist
industrialisation the countries of this camp rely on extensive mutual aid in a great
variety of forms.
The Soviet Union had to build up all branches of industry, and in the first
place heavy industry, at forced rates. The peoples democracies have been spared
the impossible task of developing all branches of industry in each of their
countries. Each of the countries of peoples democracy, entering in the socialist
camp, is able to create and develop above all those branches of industry for which
it is most favourably suited by natural and economic conditions. The successful
carrying out of this task is facilitated by extensive division of labour, economic
mutual aid and co-operation between the States of the socialist camp.

With the successful fulfilment of the long-term plans for socialist reconstruction of the
national economy, the pre-war levels of industrial output had been exceeded by 1954 as follows:
Poland more than 4-fold, Hungary about 3.5-fold, Czechoslovakia 2.3-fold, Bulgaria 5-fold,
Rumania 2.6-fold. The proportion of industrial output combined, was considerably increased. In all
the peoples democracies, apart from Bulgaria and Albania, output of the industries producing the
means of production accounts for more than half the total industrial production. The European
peoples democracies have become equipped with the latest techniques.
In Poland, the coal and chemical industries, ferrous metallurgy and the building materials
industry have made great advances. Automobile and tractor production, shipbuilding, production
of artificial fibres and other branches of industry have been brought into existence and oil
equipment, shipbuilding and others have been brought into existence. In 1954 per capita output
had increased, compared with 1938, of steel 3.5-fold, electric power more than 5-bold, cement
about 3-fold. In Hungary there has been a great development of the aluminium industry,
engineering and machine-tool construction, production of mining equipment and agricultural
machinery. In Rumania the oil extracting and oil processing industry and the chemical industry are
developing successfully. Important branches of engineering such as the manufacture of
agricultural machinery and oil equipment, shipbuilding and others have been brought into
existence.
In the German Democratic Republic the volume of industrial production in 1954 was nearly
double what it had been in 1936. In recent years the disproportion in the economy caused by the
partition of Germany has been substantially reduced. A metallurgical base has been created in the
Republic, the productive capacity of heavy engineering and shipbuilding has been extended, the
production of modern agricultural machinery organised, and the output of chemical products
increased.

While ensuring priority growth of heavy industry as the basis for the
advance and technical reconstruction of the whole national economy, the peoples
democracies are making large-scale investments in agriculture, and in the light
and food industries. This will provide a considerable expansion of output of
agricultural produce and manufactured mass consumption goods, and will raise
the living standards of the working people.

The Socialist Transformation of Agriculture

The building of socialism assumes the victory of socialist forms of economy

not only in the towns, but in the countryside too. As the experience of the
U.S.S.R. has shown, the only successful solution to the peasant question is the
change-over of the bulk of the peasantry from small-scale individual farming to
large-scale collective farming. Gradual development of producer co-operation
among the small and middle peasant farms, on a voluntary basis, is an objective
necessity for countries undertaking to build socialism.
Accordingly, the peoples democracies are developing the production of
tractors and other agricultural machinery, organising a network of State farms.
which demonstrate the advantages of large-scale socialist production, and setting
up machine and tractor stations to provide the technical re-equipment of
agriculture. Help is being given to the poor and middle peasant masses to enable
them to increase output, and steps are being taken to draw them into various
forms of purchasing, marketing, and producer co-operatives.
The socialist transformation of agriculture in the peoples democracies has
its own special features. These countries are undertaking this transformation at a
time when there is already a developed system of socialist agriculture in the
U.S.S.R., in the form of collective farms, State farms, and M.T.S. Familiarity with
the experience of the Soviet Union in the field of the socialist transformation of
agriculture, and with the achievements of the collective farms, M.T.S. and State
farms, is playing a big part in drawing the bulk of the peasantry in the peoples
democracies on to the road to socialism. The U.S.S.R.s experience in
organisational and economic consolidation of the collective farms, its forms of
organisation and remuneration of labour, the distribution of incomes etc. are
being extensively utilised in building up the system of producer co-operative
among the peasant farms.
The special features of peasant producer co-operation in peoples
democracies spring from the fact that it is developing while there is still small
peasant ownership of the land whereas, collectivisation in the U.S.S.R. took place
after the whole of the land had been nationalised. The experience of the peoples
democracies has shown that immediate nationalisation of all the land is not, in all
countries, an indispensable condition for building socialism in the countryside. In
the peoples democracies part of the land taken from the landlords during the
agrarian revolution has remained in the hands of the State, while the rest has
become the private property of the peasants. Owing to the prohibition of buying
and selling of land and restrictions on the renting of it the retention of private
ownership of land by the peasants does not lead, however, to concentration of
landownership in the hands of capitalist elements.
The agricultural producers co-operatives in the peoples democracies fall
into three main categories. These depend on the extent of socialisation of the
land and the means of production, and the methods of distribution of incomes
which follow from this. In the first place, there are associations for joint working
of the land: only the labour for carrying out the various agricultural jobs
(ploughing, sowing, crop cultivation, harvesting) is collective, while the land
allotments themselves are the property of individual members of the association.
In the second place, there are producer co-operatives: both the means of
production and the labour are socialised and the land is amalgamated into a
single block, although still remaining the private property of the co-operative
members. The bulk of the produce in co-operatives of this type (70-5 per cent) is
distributed according to work-days earned, while a smaller part is distributed
according to the share of land put into the pool. In the third place, there are
artels: labour, land and means of production have been socialised, while the
produce is distributed only according to work performed.
Thus, at present, there are three kinds of property in land in the peoples
democracies: State,. co-operative and private. The complete victory of socialism
in agriculture presupposes socialisation of all the land and its conversion into
social property. The turn towards socialisation of all the land will take place
gradually, on voluntary principles, as the peasantry, in the course of the
development of producer co-operation and the gradual extension of its higher
forms, become convinced by experience of the indisputable superiority of large-
scale collective farming over petty privately-owned farming.
The socialist transformation of agriculture is taking place in the process of
an intense class struggle. The kulaks are striving in every possible way to
undermine peasant producer cooperation. The peoples democratic States are
giving all-round material assistance to the poor and middle peasant farms, taking
steps to strengthen the organisation and economy of the producer co-operatives,
and waging an implacable struggle against the kulaks.

In Bulgaria by 1954, there were more than 2,700 working co-operatives on the land,
uniting 52 per cent of peasant farms, 108 State farms and 150 M.T.S. more than 60 per cent of
the cultivated land was in the socialist sector. In Hungary, producer co-operatives unite about
200,000 peasant families and occupy about 18 per cent of the arable land. State farms occupy
more than 12 per cent of the arable. In Poland, in 1954, there were more than 9,300 co-
operatives, occupying 7.5 per cent of all plough-land. State farms dispose of more than 12 per
cent of all the sawn area. In Rumania, by the end of 1954, there were 5,000 collective farms and
associations, uniting 318,000 peasant households with 2,750,000 acres, or more than 10 per cent
of the total. In Czechoslovakia, producer co-operatives are cultivating about 33 per cent the
plough-land, and State farms more than 10 per cent. In the German Democratic Republic, in
1955, State farms occupied 4 per cent, and agricultural producer co-operatives 18 per cent the
total useful agricultural area.

Two kinds of mistakes have occurred in the process of the socialist

transformation of the countryside in the countries of peoples democracyon the
one hand, artificial co-operation upon the peasant farms, and violation of the
voluntary principle in admission to the co-operatives; on the other hand,
underestimation of the need to organise and lead the movement to co-operation
and adopting a laissez-faire policy in the work of setting up co-operatives. The
Communist and Workers Parties are waging a campaign against both types of
mistake.
On the basis of this, socialist transformation, the peoples democracies have
won important successes in developing agriculture and raising the living standards
of the peasantry. Nevertheless, the growth of agricultural output still to a
considerable extent lags behind that of industrial output, and is inadequate for
satisfying the growing needs of the national economy and the population.
In this connection it is very important to ensure a further rapid advance of
agriculture, from the standpoint of the national economy as a whole.
This requires a further development of co-operative production,
organisational and economic strengthening of the existing co-operatives, and
improved work of the State farms. At the same time the State power in the
peoples democracies, pursuing the general policy of gradual socialist
transformation of agriculture, is making use of the still unexhausted opportunities
for obtaining a further growth of output in the individual farms of working
peasantry. To this end, productive, technical, credit and scientific assistance is
being given to the individual working peasantry and the development of their
holdings is being stimulated by means of the trade bond between town and
country, advantageous conditions of production by contract, and an appropriate
tax and procurement policy.
All these measures promote the expansion of agriculture and the
consolidation of the workers and peasants alliance.

The Rise of the Living Standards and Culture of the

Working People

Socialist construction in the peoples democracies is being accompanied by a

steady rise in the living standards and culture of the working people. This is an
expression of the operation of the basic economic law of socialism. As a result of
the rapid growth of industry, unemployment both in town and country was already
eliminated in the course of 1948-9. The number of workers employed in socialist
enterprises is growing from year to year.
The national income of these countries is increasing steadily and rapidly.
With the elimination of the classes of great land-owners and big capitalists, the
national income is used in the interests of the living standards of the working
people, and of socialist extended reproduction in town and country.
The real wages of manual and clerical workers, and the real incomes of the
peasants, are steadily rising. Price reductions are of great importance in this
respect. Important factors, too, are the reduction of rents and of the cost of other
municipal services. The raising of living standards is also ensured by the
development of social insurance for manual and clerical workers at State expense,
free education and health services, and the provision of an extensive network of
sanatoria and rest-homes.

The national income was in Poland in 1954, more than twice what it had been before the
war; in Bulgaria in 1953 it had increased by 86.7 per cent; and in Czechoslovakia by about two-
thirds.
In Poland, per capita real incomes outside agriculture were 40 per cent higher in 1953 than
in the immediate pre-war years; per capita real incomes of the rural population were 75 per cent
above those of 1938. In Hungary, the real wages of a factory worker in the first half of 1954 were
57 per cent above the 1938 level; the real income of a peasant family, was 50 per cent above
1938. The growth of real incomes is leading to a substantial increase in consumption by the
working people. In Rumania, the food consumed by a workers family in 1953 had increased as
follows compared with 1938: bread 20 per cent, sugar 48 per cent, vegetable oil 164 per cent. The
Rumanian peasant had increased his personal consumption of rye and wheat by 50 per cent in the
same period. The real wages of manual and clerical workers in Bulgaria in 1953 were 38 per cent
higher than in 1939.
During 1954 a further increase took place in the real income of the working people of the
peoples democracies.

The building of socialism in the peoples democracies is inseparably bound

up with the cultural revolution. The broadest strata of the working people are
acquiring culture and knowledge. The revolution has put an end to the monopoly
of education and culture held by the bourgeoisie and the land-owners. Education
and culture have become the property of the whole people. With increasing speed
a new socialist intelligentsia is coming into being. The numbers of engineers and
technical personnel are increasing. Putting to use in every way the rich heritage of
progressive culture from the past of their peoples, who have made notable
contributions to world culture, the peoples democracies are creating a new
culture socialist in content and national in form. The socialist culture of the
U.S.S.R., profoundly international in its character is exerting a great influence on
the development of the national cultures of the peoples democracies. As a result
of the broad development of cultural co-operation between the countries of the
socialist camp they are reciprocally enriching each others cultures.

In Rumania, between 1938-9 and 1953-4, the number of pupils in 7-year schools had
increased 4.7-fold, in secondary schools more than 4-fold, in higher educational institutions more
than 2.2-foldfrom 29,000 to 64,300, apart from 19,000 correspondence students. In the old
Poland, in 1937-8, there were twenty-eight higher educational institutions with 48,000 students of
whom no more than 5 per cent were children of workers and 9 per cent children of peasants. In I
953, Poland had eighty-three higher educational institutions with 134,000 students, of whom the
overwhelming majority were children of workers and peasants.
In Hungary in 1954-5 the number of pupils in secondary schools was three times what it
had been in the last year before the war, and the number of students was four times as many.
In 1938 there were nine institutions of higher education in Czechoslovakia, with a total of
19,000 students. Today there are 40 such institutions, with 47,900 students. In Albania in 1954
the number of pupils in primary schools was over 2.6 times as many as in 1938, and there were
7.7 times as many secondary school pupils.

The successes of socialist construction in the peoples democracies are fresh

proof that the socialist economic system is indisputably superior to the capitalist
system.

BRIEF CONCLUSIONS
(1) The peoples democratic revolution in the countries of Central and
South-eastern Europe in the first stage of its development completed the tasks of
the bourgeois-democratic revolution. The anti-imperialist character of the
revolution was expressed in the fact that it freed the peoples of these countries
from the yoke of imperialism and, with the support of the Soviet Union and the
whole socialist camp, ensured their national independence. The anti-feudal
character of the revolution was expressed in a broad democratisation of social and
State structure, in the abolition of the monarchy where it existed, and in the
carrying through of revolutionary agrarian changes; the land of the landlords was
confiscated and divided among the landless and land-hungry peasants. With the
fulfilment of the anti-feudal tasks, the bourgeois-democratic revolution developed
into the socialist revolution. This was reflected in the socialist nationalisation of
large-scale and medium industry, transport, the banks, foreign trade and internal
wholesale trade. The peoples democratic State began successfully to fulfil the
functions. of the dictatorship of the proletariat.
(2) The economy of the peoples democracies in the transitional period from
capitalism to socialism comprises three basic economic forms: socialist, small
commodity, and capitalist. The leading part is played by socialist economy. In the
course of struggle against the capitalist elements, the peoples democratic States,
relying on objective economic laws and basing themselves on the socialist sector,
are pursuing a policy of building socialism.
(3) Socialist industrialisation in the European peoples democracies is a
decisive condition for building socialism, and ensuring a rise in the living
standards of the people. Thanks to the advantages of the socialist forms of
economy and the mutual assistance and co-operation within the socialist camp,
the peoples democracies are rapidly advancing along the road of industrial
development, ensuring the priority development of heavy industry.
(4) The victory of socialism in the European countries of peoples democracy
requires the socialist transformation of agriculture. This socialist transformation of
the peasant farms is taking place through their gradual organisation in producer
co-operatives on a voluntary basis, while retaining private peasant ownership of
the land. Socialisation of all the land will be the result of the development of
higher forms of producer co-operatives. The advance of agriculture is being
achieved through further development of producer co-operation, with increasing
aid from socialist industry, and also through making use of the existing
possibilities for the development of individual peasant economy.
(5) The building of socialism in the European countries peoples democracy
is leading to a steady rise in the standards and cultural level of the working
people. Unemployment has been abolished and the real wages of the workers and
the real incomes of the peasants are growing.
 CHAPTER XLII

THE ECONOMIC SYSTEM OF THE CHINESE

PEOPLES REPUBLIC

The Prerequisites of the Chinese Peoples Revolution

Until the victory of the peoples revolution China was a backward, agrarian
country dependent on the imperialist powers. Chinese economy was of a semi-
feudal and semi-colonial character. The semi-feudal character of the economy
consisted in the dominance of feudal-landlord landownership and semi-feudal
methods of exploiting the peasantry, and this was the main cause of the
stagnation, backwardness and lack of rights that prevailed. The land was worked
by primitive methods.
The landowners, as a rule, did not carry on large-scale farming but leased
out the land in small plots to the peasants. The tenant farm was the most
widespread form of peasant holding. Leases were as a rule for an indefinite term
or perpetual. Pre-capitalist forms of rent were the most widespread: labour-rent,
rent in kind, money-rent.
The semi-colonial character of the economy consisted in the fact that over a
long period foreign imperialists had dominated China. The intrusion of foreign
imperialism on the one hand hastened the process of disintegration of feudal
relations, but, on the other, imperialism, interested in upholding feudal survivals
in China, entered into a compact with the feudal forces and held back the
development of Chinese capitalism. The clique of landlords and compradore
bourgeoisie ruling in China assisted in every way the penetration of the foreign
monopolies into the countrys economy. Though capitalism developed to a certain
degree, it never became the basic economic system in China.
Right up to the revolution China remained a country where capitalism was
developed only to an extremely low level. Modern industry, especially heavy
industry, was very weak. The foreign monopolies hindered the development of
industry, especially the. branches producing means of production, and kept the
country in a state of technical and economic backwardness. Modern industrial
enterprises existed only in a few coastal districts and in the north-east of the
country, while nearly the whole of Chinas vast territory was entirely lacking in
machine industry. The production of modern industry pre-revolutionary China was
equivalent only to 17 per cent the total production of industry and agriculture.
The overwhelming mass of manufactured articles were produced by small
handicraft enterprises and manufactories. At the same time the growth of
commodity relations in town and country rendered extremely acute the
unbearable oppression constituted by the semi-feudal forms of exploitation of the
peasantry. The spread of wage-labour created numerous bodies of proletarians in
town and country.

The landlords, who made up 4-5 per cent of the rural population of China, owned more
than half of all the land; the poor and middle peasants, who made up 90 per cent of the rural
population, owned only 30 per cent of all the land.
The peasants leased the land on share-cropping terms, paying the landowners from 50 to
70 per cent of the harvested crop for the lease of the land and implements.
The main mass of the peasantry, the poor and middle peasants, were compelled to seek
loans in cash and in kind from the land-owners and money-lenders. About 60 per cent of all
peasant households constantly had recourse to the aid of money-lenders in order to pay their
taxes; about half of the peasants regularly ran short of food, and were compelled to borrow it from
the rich. Money-lenders and landowners extorted huge sums from the peasants as interest on
loans.
Chinas dependence on imperialist powers, principally on Britain, Japan and the U.S.A.,
grew continually. Foreign capital in industry amounted to 75 per cent of the total capital invested
while the share held by national capital did not exceed 25 per cent. Beginning with the thirties of
the twentieth century American imperialism assumed the dominating position in China. In 1936,
the U.S.A. share in Chinas foreign trade was 23 per cent; in 1946 it was 53 per cent. The
American monopolists controlled industry, foreign and internal trade, and finance.

As early as the middle of the last century, when the capitalist powers began
to penetrate China on an extensive scale the class of feudal landlords that ruled
the country proved quite incapable of defending the State from external enemies.
As a result, despite the huge size of the country, China virtually lost its position
as an independent State.
The semi-feudal character of Chinas economy determined the class
structure of the populations.
The landlords were the most reactionary exploiting class in Chinese society.
They served as the main prop of the foreign imperialists who enslaved the
Chinese people.
The peasantry were the most numerous class in China. With the penetration
of commodity relations into the countryside, there was taking place a process of
class differentiation among the peasantry. On the eve of the victory of the
peoples revolution the labourers (landless peasants) and poor peasants (those
with small plots of land) comprised 70 per cent, the middle peasants 20 per cent,
and the kulaks 5 to 6 per cent of the village population. The kulaks made use to a
large extent of hired labour (farm labourers), combining capitalist exploitation of
the peasantry with semi-feudal methods of exploitation.
In the twentieth century, in connection with the development of capitalism,
new classes besides the feudal landlords and the peasantry appeared in the arena
of social life: the bourgeoisie and the proletariat.
The bourgeoisie in China from the very beginning found itself economically
dependent upon foreign imperialists. The big compradore bourgeoisie was closely
linked with feudal land-ownership and the foreign imperialists, especially with the
American, British and Japanese imperialists. It functioned as middleman between
the foreign imperialists and the Chinese market and concentrated considerable
wealth in its hands, obtained through merciless exploitation of the worker and
peasant masses. During the rule of the Kuomintang clique important positions in
the countrys economy were seized by a handful of monopolists who made
extensive use of State power to plunder the country (so-called bureaucratic
capital). Another section of the bourgeoisie consisted of the national (chiefly
middle) bourgeoisie. As the foreign imperialists prevented the development of
native industry by every possible means, the national bourgeoisie displayed
opposition to the foreign imperialists and the compradore bourgeoisie. The rural
bourgeoisiethe kulaksmade extensive use of hired labour, combining capitalist
exploitation of the peasantry with semi-feudal methods of exploitation.
A very numerous section of the population was the urban petty bourgeoisie
(handicraftsmen, small traders) among whom discontent with imperialist robbery
and feudal oppression increased.
The industrial proletariat, on the eve of the victorious peoples revolution,
numbered about four millions. In addition to workers in factory industry, there
were many millions of proletarians and semi-proletarians engaged in other
branches: port and town workers engaged in loading, unloading and transporting
goods (coolies and rickshaw pullers), workers engaged on navying, and also rural
proletarians (labourers), numbering before the revolution some tens of millions.
The industrial proletariat, the most organised, conscious and advanced
detachment of the working masses, from the twenties of the present century
exercised a determining influence on the political life of the country.
After the first world war, under the influence of the great October Socialist
Revolution in Russia a broad anti-imperialist and anti-feudal revolutionary
movement arose in China, linked with a rapid upsurge in the working-class
movement. The Chinese revolution, aimed at overthrowing oppression by
imperialism and feudalism, became part of the world revolution.

The Character of the Chinese Revolution

The peoples revolution in China, which achieved victory in 1949, had deep
historical roots. For a long time the alien imperialists and the landlord-compradore
State plundered and oppressed the Chinese people. Imperialist oppression and
feudal methods of exploitation rendered class contradictions extremely acute and
brought .the country to the brink of economic and political disaster. The peoples
revolution became the only way out of the situation thus created.
In view of the semi-colonial position of the country and the predominance of
semi-feudal relations, the peoples revolution in China assumed in its first stage
the character of a national-liberationist, bourgeois-democratic revolution. The
principal contradictions, on the basis of which this revolution grew and developed
were, on the one hand, the contradiction between the Chinese people and foreign
imperialism, and on the other, the contradiction between the mass of the people
and feudalism. The main enemies of the Chinese revolution were the forces of
imperialism and feudalism, acting in close alliance. Consequently, the revolution
was called upon to carry out two inseparably connected tasks: on the one hand to
overthrow the oppression of foreign imperialism, and on the other to overthrow
oppression by the feudal landlords inside the country. Thus, the Chinese
bourgeois-democratic revolution was, from the very beginning, an anti-imperialist
and anti-feudal revolution. The bourgeois-democratic revolution in China is a
combination of the struggle against feudal survivals and the struggle against
imperialism. (Stalin, The Revolution in China and the Tasks of the Communist
International, Works, vol. IX, p. 292.)
The main driving forces of the Chinese peoples revolution were the working
class and the peasantry. The working class, and the peasantry led by it,
constituted the chief army of the revolution, guaranteeing to the Chinese, people
victory over their foreign and internal enemies. In the course of the revolutionary
struggle a united peoples democratic front was formed, in which there took part
the working class, the peasantry, the urban petty-bourgeoisie, the national
bourgeoisie and all the democratic elements in the country. The revolutionary
struggle of the Chinese people was headed by the Communist Party of China,
which was guided by the theory of Marxism-Leninism, creatively applying this
theory in the conditions of its own country and making use of the experience of
the victorious revolution in the Soviet Union.
The historical peculiarity of the Chinese peoples revolution is that it
developed under the conditions of the general crisis of capitalism, when the world
system of capitalism is in its epoch of decline and is being replaced by the
socialist system, when the camp of socialism has come into being, headed by the
Soviet Union. In these circumstances the Chinese Revolution was not a revolution
which set up a dictatorship of the bourgeoisie and opened a freer road for the
development of capitalism, but a bourgeois-democratic revolution of a new type,
growing over into a socialist revolution. The Communist Party of China proceeded
from the fact that in the present international situation China, as a result of the
bourgeois-democratic revolution, leaves the capitalist path of development and
takes the non-capitalist, i.e., the socialist road.
Developing Lenins teachings on the character of colonial revolutions in the
epoch of the general crisis of capitalism and on the growing of the bourgeois-
democratic revolution into. the , socialist revolution, Mao Tse-tung wrote:

The whole Chinese revolutionary movement led by the Chinese

Communist Party is a complete revolutionary movement embracing the two
revolutionary stages, democratic and socialist, which are two revolutionary
processes differing in character, and the socialist stage can be reached only
after the democratic stage is completed. The democratic revolution is the
necessary preparation for the socialist revolution, and the socialist
revolution is the inevitable trend of the democratic revolution. And the
ultimate aim of all Communists is to strive for the final building of socialist
 society and communist society. (Mao Tse-tung, The Chinese Revolution
and the Communist Party of China, Selected Works; vol. III, p. IOI.)

During nearly three decades the masses, led by the class with the
Communist Party at its head, carried on a stubborn armed struggle against
foreign imperialism, against the rule of the feudalists and the compradore
bourgeoisie.
In the course of a long anti-imperialist and anti-feudal struggle, the Chinese
people established extensive revolutionary bases on which they set up a peoples-
democratic united front government, carried out radical social transformations
and accumulated rich revolutionary experience and gradually built up a mighty
peoples-democratic army, which triumphed in 1949. The Chinese revolution in its
bourgeois-democratic phase successfully accomplished the task of the overthrow
by the masses, led by the proletariat, of the rule of alien imperialism, the rule of
the feudal landlords and the big monopolist compradore bourgeoisie, set up a
peoples-democratic republic and carried through revolutionary agrarian
transformations.
As the tasks of the bourgeois-democratic revolution were fulfilled, it grew
over into a socialist revolution, making the transition to the road of socialist
transformations.
The Chinese Peoples Republic is a peoples democratic State, led by the
working class and based on the alliance of the workers and the peasants. In the
socialist phase of the revolution the peoples democratic power has begun
successfully to fulfil the functions of the dictatorship of the proletariat. The
peoples democratic power is developing the construction of the foundations of
socialism while at the same time completing. Its fulfilment of the tasks of the
democratic revolution. China has entered the transition period to socialism.
The greatest significance of the Chinese revolution consists in the fact that
it has opened the road of development towards socialism before a huge country
with an extremely backward economy in which semi-feudal and semi-colonial
forms of economy predominated. This is the principal peculiarity of the economic
development of the Chinese Peoples Republic as compared with the European
peoples democracies. In the new historical conditions the possibility of
successfully building socialism has opened before China. The peoples power,
relying on the help of the socialist camp and the support of the vast masses of the
people, has carried out in a very short time-very profound revolutionary changes
in Chinas economy and led the country on to the non-capitalist road, the road of
building socialism.

Revolutionary Transformation of Agriculture. Socialist

Nationalisation

Among the radical social and economic changes in the Chinese Peoples
Republic, the agrarian reforms have enormous significance. During the
revolutionary war, and later in the course of the agrarian changes of 1950-2, the
system of feudal landownership was abolished and feudal exploitation ended.
In 1950 the Central Peoples Government of China passed the law on
agrarian reforms of the Chinese Peoples Republic, under which the landed
property of the landowners was confiscated and that of the temples and
monasteries requisitioned without compensation. Draught animals, farm
implements and superfluous buildings were also confiscated from the landowners.
The confiscated land and other means of production were distributed per
person among the peasants, without regard to age, sex or nationality. The
landless peasants and those with little land received the main share of the
landowners land and farm implements. All peasant debts to landowners for rent
of land and to usurers in respect of loans were cancelled.
The agrarian reforms were carried out by the Peoples Democratic
Government. with the active participation of the broad masses of the peasants.
By the beginning of 1953 the agrarian reform was completed throughout the
whole country (with the exception of a small number of regions inhabited by
national minorities) over a territory with an agrarian population of about 450
millions. Peasants without land and those with little land received 116 million
acres of cultivable land.
Along with this the old feudal system of taxation with its multitude of State
and local taxes payable by the rural population, and collected from them many
years in advance was abolished. The agrarian changes in China liquidated the
land-owning class. Instead of ownership of the land by the landlords, small
peasant private property in land was established. The productive forces of
agriculture were freed from the trammels of outdated feudal relations, and
thereby the way was opened to the fulfilment of the great task of industrialising
China.
The Peoples Democratic Government, carrying out the agrarian reforms
which completed the bourgeois-democratic revolution, at the same time passed
on to the road of socialist reorganisation.
This means first and foremost the socialist nationalisation of large-scale
industry and the banks; all industrial enterprises commercial concerns, banks,
transport and other property belonging to the compradore monopolist bourgeoisie
were confiscated and taken over by the peoples State.
All the unequal treaties with foreign States, all the old customs, laws and
regulations by means of which the foreign imperialists plundered the Chinese
people and stifled the national industries, were abolished. The majority of
undertakings belonging to foreign capital were requisitioned.. State control of
foreign trade was established. China was finally freed from imperialist
enslavement.
The special feature of the socialist nationalisation carried out by the Peoples
Democratic Government in China lies in the fact that it left untouched the
property of the national bourgeoisie, which in the main consisted of middle
bourgeois.
Socialist nationalisation in China led to the creation of the State socialist
sector, the most important economic bulwark of the peoples democratic State in
economic and cultural construction.

Forms of Economy and Classes in the Chinese Peoples

Republic in the Transition Period

As a result of the revolutionary agrarian changes and the transformation of

the commanding heights of the national economy into public property, radical
changes have taken place in Chinas economy. Instead of the former semi-feudal
and semi-colonial economy there has arisen a transitional economy of several
forms, distinguished in China by a number of special features.
The leading place in Peoples Chinas multiform economy is held by the
socialist sector. The socialist sector embraces, first, enterprises based on State
ownership, and, second, enterprises based on co-operative ownership.
State property comprises undertakings which were formerly the property of
the compradore bourgeoisie and foreign capitalists, nationalised by the Peoples
Democratic Government, and also undertakings newly established by the State
after the victory of the revolution: factories and workshops, pits and electric
power-stations, railways and other forms of transport, means of communication,
etc.
The mineral wealth, waters, and also State forests, lands adjoining towns,
virgin lands and other natural resources are also State property and belong to the
whole people. In the sphere of agriculture State property comprises the State-
organised machine and tractor stations, machine-hiring depots and agro-technical
stations, and State agricultural enterprises -the State farms. In the sphere of
distribution, the State owns trading enterprises which playa decisive role in
wholesale trade. The whole of foreign trade and nearly all banking business are in
the hands of the State.
Further, the socialist sector of the economy embraces co-operative
enterprises wholly based on collective ownership by the working masses. To this
sector being supply and marketing co-operatives, consumer and credit co-
operatives, agricultural producers co-operatives of the higher type (collective
farms) and those of the handicraft producers co-operatives in which all the
means of production are the co-operative property of their members. Supply and
marketing co-operatives are subject to the guiding influence of State trade and
help to strengthen the economic ties between petty commodity peasant economy
and State socialist economy and to increase the element of planning in the supply
of manufactured goods to the peasants and also in the State procurement of
grain, cotton and other materials for industry. Credit co-operation is connected
with the State Bank, which directs its work and helps it with funds. The peoples
democratic State assists in every way producer co-operation among the individual
peasants and artisans, and facilitates the gradual transition of such co-operation
from lower forms to higher.

The relative share of the socialist sector in industry and trade is growing rapidly. In 1949
34 per cent of industrial output came from State enterprises, 2 per cent from joint (State-and-
private) enterprises and 63 per cent from private enterprises. In 1954 the share of State
enterprises had risen to 59 per cent, and that of State-and-private enterprises to 12.3 per cent,
while the share of private concerns, had been reduced to 24.9 per cent. In 1954 also, 89 per cent
of wholesale trade was conducted by State and co-operative organisations. Under the Five-Year
Plan the share of State and co-operative organisations in retail trade is to grow from 34 per cent
in 1952 to 55 per cent 1957.
The State controls all foreign trade and concentrates directly in its hands about 90 per cent
of all import and export operations, including all trade with the U.S.S.R. and the countries of
people democracy. The State Peoples Bank has monopoly rights of issue and controls more than
90 per cent of all deposits and loans.
In 1950, for the first time in the history of China, a single State Budget was drawn up,
having a real basis. Since 1951 the Budget has shown an excess of revenue over expenditure. In
1955 more than 60 per cent of the Budget resources were allocated to economic construction and
also to social, cultural and educational needs. More than 89 per cent of the allocation to industry in
the 1955 Budget was directed to heavy industry.
By the end of 1954 marketing and consumer co-operation united 172 million persons.
Credit co-operation in the countryside took the form of agricultural credit co-operatives credit
groups for mutual aid and credit sections in the supply and marketing co-operatives. There were
150,000 credit co-operatives in China in the spring of 1955, with over 90 million members. All
kinds of credit co-operation are developing rapidly.

The socialist sector is the leading force in the whole national economy. It
serves as the basis for the introduction of further socialist changes by the peoples
democratic State. On the basis of socialist production-relations the basic economic
law of socialism has arisen and come into operation. The aim of production in the
socialist sector is not the extraction of profit but the satisfaction of the growing
demands of the whole of society. Production in this sector is growing steadily.
Socialist enterprises are more and more fully equipped with modern technique.
But the operation of the basic economic law of socialism is still very much
restricted, as private property forms of economy predominate in the countrys
economy.
Thanks to the existence of socialised ownership of the means of production,
in opposition to the law of competition and anarchy of production, there has
arisen and begun to operate the economic law of planned, proportional
development of the national economy. The peoples government of China, basing
itself on the socialist sector, carries out current and long-term planning of the
national economy. State enterprises are developing according to plan; economic
accounting is applied in them, and payment of manual and clerical workers is
made in accordance with the quality and quantity of the work performed by them.
The State fixes the prices of the most important products of industry and
agriculture, regulates the monetary circulation and controls foreign trade. By
these means the State exercises a regulating influence on the other sectors of the
national economy.
In order to meet the countrys demands for food and other goods and
overcome chaotic capitalist tendencies, the State has introduced planned
purchase and planned supply of grain, fats and textiles and, also planned
purchase of cotton.
To the socialist sector belong various kinds of co-operation which are partly
based on collective ownership by the working masses and their joint labour. This
kind of semi-socialist co-operation is in China the main form of transition to the
socialist transformation of agriculture and handicraft industry. To this transitional
category belong the agricultural mutual-aid production teams, in which the
peasants work collectively to carry out certain tasks. They retain private property
not only in land but also in the instruments of production and in the products.
Gradually these forms of co-operation are transformed into agricultural producer
co-operatives, in which land is transferred to the co-operative in the form of
shares and the work of the farm is carried on jointly. In the specific historical
circumstances of China a gradual and extensive application of very simple
transitional forms of co-operative economy enables the broad masses of the
individual peasants to be drawn more successfully into collective production.

Already before the formation of the Chinese Peoples Republic, in the years of the
revolutionary wars after the agrarian transformations had been carried out, agricultural mutual aid
production organisations were formed, and these contained growing-points of socialism. In those
days there appeared also in the liberated areas individual agricultural produces co-operatives of a
semi-socialist or socialist type. Extensive organisation of agricultural mutual-aid production teams
and mass formation of agricultural producer co-operatives on the basis of mutual-aid work-teams
began, however, only after the formation of the Chinese Peoples Republic.
By the end of 1951 there were more than 300 agricultural producer co-operatives in China,
both socialist and semi-socialist. By the end of 1953 their number exceeded 14,000, having
increased 47-fold in two years. By June, 1955, there were 650,000 agricultural producer co-
operatives in the country, embracing 16,900,000 peasant holdings. Thus, each co-operative
contained on average 26 house-holds. The total number of holdings embraced by agricultural
mutual-aid production teams and agricultural producer co-operatives amounted in 1954 to 60 per
cent of all the peasant holdings.

The petty commodity sector embraces the holdings of peasants and artisan
based on petty private ownership of land and other means of production and
personal labour. While China is still an agrarian country with a poorly developed
industry petty commodity production continues to occupy the predominant place
in the economy and serve as the means of existence for the bulk of the
population. As a result of the revolutionary agrarian transformations the relative
importance of the middle peasantry has greatly increased. A great number of
poor peasants and labourers have obtained land and acquired their own holdings,
and the middle peasant has become the central figure in the countryside.
The petty commodity sector also includes artisan production, which is
especially widespread in the countryside, small trading concerns in the towns,
small workshops for day-to-day service of the population, and so on.

In Chinese agriculture fragmented and backward petty commodity production

predominates. The land is divided up into tiny plots and worked by the hand labour of the
peasants or, with the aid of draught cattle, by primitive agricultural implements. But this backward
farming technique is gradually being replaced by modern agricultural machinery and implements,
received by the peasants from the growing heavy industry of China. In the Chinese countryside
there are about 110 million small and very small peasant holdings. The country includes about 30
million artisans. A large part of the industrial goods consumed by the peasantry are produced by
handicraftsmen and artisans.
 Small commodity peasant and handicraft production inevitably gives birth to
capitalist elements. Class differentiation into poor peasants and kulaks is
developing in the village. But in the conditions of the peoples democratic system
it is only of a restricted nature.
In the small commodity sector the regulator of production remains the law
of value, manifesting its influence in a spontaneous fashion. The law of value has
a material influence also on production in the socialist sector. As State and co-
operative property is strengthened and the influence of the law of planned
development of the national economy is extended, the State is more and more
mastering the law of value, money, and trade, and converting these into
instruments of socialist construction.
The peoples democratic State gives help to the individual peasant farms
and handicraft workers in making use of the productive possibilities which they
possess; and at the same time it encourages them to adopt the socialist road of
development through co-operation, based on strict observance of the voluntary
principle.
Survivals of the patriarchal form of economy still exist in Chinas economy.
A considerable section of the peasantry in the remote and thinly-populated areas
of the country carry on natural or semi-natural (patriarchal) economy in the form
of primitive farming and nomadic stockbreeding, directed to satisfying the
peasants own needs and very weakly connected with exchange and the market.
The peoples government encourages the creation in these areas of mutual-aid
stock-breeding groups and co-operatives.
The private capitalist sector includes capitalist industrial enterprises in the
towns, kulak farms in the countryside and trading capital enterprises. To this
sector also belong the numerous handicraft workshops employing hired labour
and the manufactories, the number of which is fairly large. The private capitalist
sector occupies a considerable place in Chinas economy.

In China in 1953 there were more than 200,600 private capitalist enterprises, in which
more than 2,750,000 workers, including office workers, were employed. The value of the
production of these enterprises constituted 38 per cent of the value of the countrys total
production. By 1957, under the Five-Year Plan the share of private capital in industrial production
is to be reduced to approximately 12 per cent, and the share of private enterprise in retail trade
will amount to roughly 21 percent.
In the Chinese countryside, after the abolition of the feudal property of the landlords, there
exists the capitalist property of the kulaks and the boundless sea of petty individual peasant
property, on the basis of which a spontaneous growth, of capitalist elements is taking place; new
kulaks are appearing and part of the well-to-do middle peasantry are trying to become kulaks.

In the private capitalist sector the regulator of production continues to be

the law of value, and the law of surplus-value retains its force along with this.
However, the sphere of action of the law of surplus-value is increasingly
restricted.
The peoples government in China carries out in relation to capitalist
industry and trade a policy of utilising, restricting and transforming, with as its
ultimate aim the liquidation of the system of capitalist exploitation and of the
exploiting classes and the replacement of capitalist property by public ownership
of the means of production. In the specific circumstances of China the attainment
of this goal demands a relatively long period of time.
In view of the economic backwardness of China and the predominance in
the country of fragmented, petty commodity production, the peoples government
makes use, under its control, of private industry and trade for the purpose of
extending industrial and agricultural production, accumulating resources, training
technical cadres and maintaining employment. With the aim of increasing
industrial and agricultural production and developing commodity circulation, the
peoples government advances credit to private enterprises, gives them orders for
the production of particular kinds of goods, supplies them with raw material and
buys their finished products from them.
Along with this it carries out a policy of restricting the exploiting tendencies
of the capitalists in the towns and the kulaks in the countryside. The peoples
power checks the activity of those capitalists who try to raise the prices of goods
in evasion of the laws in force, or to subvert workers control over private
concerns, or to disrupt State plans, thereby doing damage to the peoples
interests. A substantial contribution to the restricting of the capitalist elements in
town and country is made by taxation policy.
The peoples government encourages the transformation of private capitalist
industrial and commercial enterprises into various kinds of State-capitalist
enterprises, gradually creating the conditions for the property of the capitalists to
be transformed into public property.
The State-capitalist sector embraces those capitalist enterprises which in
various ways are connected with and collaborate with the State sector of the
economy. Such enterprises include industrial and commercial ones, banks, and
credit associations.
There exist in China on a wide scale the following basic forms of State
capitalism, constituting successive levels of its development. The lowest form of
State capitalism is the system of periodical purchases of the products of private
enterprise by State organs; the medium form is the working up by private
enterprises of raw material and semi-products belonging to the State, State
orders for finished products, centralised purchases, guaranteed markets; the
highest form is the creation of mixed, so-called State-and-private concerns.
These are enterprises in which the State invests its own funds and in which it has
its representatives to manage the enterprises jointly with the capitalists. The
leading role in these enterprises is played by the State. Exploitation of labour by
capital is restricted; the capitalists receive only part of the profits. With the
passage of time this highest form of State capitalism will assume ever greater
importance.
The development of all these forms of State capitalism is accompanied by
class struggle. Chinas experience fully confirms Lenins statement that State
capitalism in the transition period is a continuation of the class struggle in
another form, and under no circumstances. . . the substitution of class peace for
class war. (Lenin, The Tax In Kind, Selected Works, 1950, Vol. II, Part 2, p.
546.).
The development of State capitalism prepares the necessary conditions for
future nationalisation of the enterprises.
Thus there exist in the transitional economy of China the same three basic
forms of social economysocialism, petty commodity production and capitalism
as existed in the transition period from capitalism to socialism in the Soviet Union
and which exist at the present time in the European peoples democracies. As a
result, however, of Chinas economic and technical backwardness inherited from
the past, the relative, share of the socialist forms within its economy is
considerably less than in the European peoples democracies, and the relative
share of capitalism, and, even more, that of petty commodity production are
correspondingly greater. In China, unlike the European peoples democracies,
State capitalism is extensively utilised in the interests of socialist construction.
The class structure of society has changed in accordance with the changes
that have taken place in Chinas economy. The basic classes are the working class
and the peasantry. Alongside the working masses of workers and peasants are
also the numerous artisans and other toilers of town and country. In addition
there is the national bourgeoisie in the towns and the kulaks in the countryside,
and also the numerous stratum of urban petty bourgeoisie.
The Communist Party of China, taking into account the various forms of
economy and classes in the economy of the transition period, mastering and
making use of the economic laws of the development of society, has determined
the direction of economic construction for the whole transition period. In 1953
Mao Tse-tung declared:

The general line and the central tasks of the Party in this transition
period are, in the course of a somewhat lengthy space of time, gradually to
effect the socialist industrialisation of the country, gradually to effect the
socialist transformation, of agriculture, handicraft industry and private trade
and industry. This general line is a beacon illuminating all our work. To carry
out any work, whatever its nature that diverts us from it, is to commit an
error either of the right deviation or of the left deviation. (Pravda, June 22,
1954.)

The regime of peoples democracy in China guarantees the possibility of

liquidating exploitation and poverty and building socialist society. In China, a
huge, economically backward country with complex and variegated conditions, the
building of socialist society is a gigantic task. The Communist Party is working on
the principle that socialist society will be built, basically, in the course of about
three Five-Year Plans.
Of decisive importance for the success of socialist construction is the
strengthening of the alliance of workers and peasants under the leadership of the
working class. Therein lies the basic condition for drawing the peasant masses
into the building of socialism. The policy of the Peoples Government is aimed at
the development in every way of the economic links between State industry and
peasant economy, and at extending the co-operative organisation of the peasant
farms. The Communist Party of China takes as a basic principle that to strengthen
the alliance of the workers and peasants it is necessary, simultaneously with the
gradual putting into effect of socialist industrialisation, gradually to carry out a
socialist transformation of agriculture as a whole. This means bringing about co-
operation between the peasant holdings; that is, transition from individual
farming to co-operative forms of farming, with gradual liquidations of the system
of kulak farms, as a result of which the whole rural population will become well-
to-do.
In China in the transition period an important role is played by the united
peoples democratic front led by the working class. It is a broad association based
on the alliance of the workers and peasants and including all patriotic elements,
i.e., also those elements of the national bourgeoisie who are ready to co-operate
with the peoples democratic State. Owing to the special historical conditions of
China, which was in the past oppressed by foreign imperialists and can only
become an independent and powerful State by following the path of socialism,
there is not only struggle between the working class and the national bourgeoisie
but also a relationship of practical co-operation. The peoples government draws
the national bourgeoisie into participation in State affairs, into the solution of
urgent problems of economic construction, while at the same time suppressing all
forms of anti-popular activity.
The fundamental contradiction in the transition period is the contradiction
between socialist and capitalist elements in town and country, between the
working class and the working masses of the peasantry, on the one hand, and the
bourgeoisie in the towns and the kulaks in the country, on the other. For the
building of socialism it is necessary that the contradiction between the socialist
and capitalist economies be resolved. This contradiction is being resolved through
the gradual carrying through of radical economic changes which will alter the face
of China: socialist industrialisation, socialist transformation of agriculture and
handicraft production, radical transformation of private industry and trade, leading
to the complete elimination of capitalist relations in these branches of economy
and their replacement by socialist relations. Socialist industrialisation is the main
link in socialist construction in China, while the transformation of agriculture and
handicraft production and that of private industry and trade are important
component parts of it, inseparable from socialist industrialisation. The socialist
transformation in Chinas economy is accompanied by acute class struggle
between socialist and capitalist elements, which develops in accordance with the
formula: Who will beat whom?

The Paths of Socialist lndustrialisation of China

In the course of a brief period, 1949 to 1952, the Chinese Peoples Republic
restored the national economy which had been ruined during the prolonged war.
Already by 1952 the volume of production in the basic branches of industry and in
agriculture exceeded the highest figures ever attained in the past. The relative
share of the socialist forms of economy had grown and their leading role in the
whole national economy had been consolidated.
In the course of the same period the entire mainland of China was united,
the agrarian changes were brought to completion, and a number of measures
were taken for the democratic transformation of the social system and the
suppression of counter-revolutionary elements. The strengthening of the financial
system and the currency reform laid the basis for the stabilisation of prices. All
this prepared the conditions for unfolding planned economic construction, having
as its aim the gradual socialist reconstruction of society.
Beginning in 1953, the Chinese Peoples Republic began to carry out the
first Five-Year Plan for the development of the national economy (1953-7). This
plan was approved in its final form by the second session of the All-China
Assembly of Peoples Representatives in July 1955, but its basic tasks had been in
process of being put into effect since 1953.
The aim of the first Five-Year Plan for the development of Chinas national
economy is, first and foremost, to create the primary foundation for socialist
industrialisation of the country. In accordance with the economic law of priority
growth of the production of means of production, the first Five-Year Plan provides
for the principal forces of the country to be concentrated on the creation of heavy
industrymetallurgy, fuel, power, engineering, chemicalsas the fundamental
basis for the development of the entire national economy. The peoples
democratic government of China starts from the principle that only on the basis of
heavy industry can the advance be assured of all branches of industry and
agriculture, together with satisfaction of the requirements of defence and a
steady rise in the material and cultural standard of life of the people. Alongside of
the main taskdevelopment of heavy industry in every waythe Five-Year Plan
envisages an advance in transport, light industry and agriculture and an extension
of trade, with a steady growth in the relative share of the socialist forms of
economy.
Other tasks of the Five-Year Plan are the creation of the primary basis for
socialist transformation of agriculture and handicraft industry, the creation of the
conditions for socialist transformation of private industry and trade, and the
gradual raising of the material and cultural standard of life of the people on the
basis of the growth of production.
China possesses all the conditions needed for solving the historic task of
industrialising the country, and has extensive possibilities of doing this.
China possesses immense human reserves. The Chinese working class,
headed by the Communist Party, is leading economic and cultural construction. As
the foremost class of society, by its exemplary self-sacrificing labour, by its
organisation and discipline, it is rallying the broadest strata or the working
masses in the fight for socialism. The friendly alliance of the workers and
peasants has been consolidated and grown strong, and the cause of the
industrialisation of the country is meeting with active support from hundreds of
millions of peasants. As a result of the agrarian changes the peasants have been
freed from the huge payments they used to make to the landlords which enables
them, as, well as improving their living conditions, to contribute part of the fruits
of their labour to the cause of industrialisation.
China possesses very rich natural resources for developing all branches of
industry, and in the first place heavy industry. At the same time there are
inevitably a number of difficulties to be overcome on the way to fulfilling this task,
difficulties connected with technical backwardness, insufficiency of skilled
industrial personnel, an irrational distribution of industry and disproportion
between its several branches, inherited from the past, lack of knowledge of the
countrys natural resources, etc.
The industrialisation of China is being carried out through the building of
enterprises equipped with the most up-to-date technique, and radical
reconstruction of a number of large-scale factories, and also more rational and
complete utilisation of old enterprises.
The Chinese Peoples Republic receives first-class equipment from the
Soviet Union and the European peoples democracies, and is drawing on their very
rich technical experience, and experience in the organisation of labour and
production at large-scale socialist enterprises.

It is intended to construct and reconstruct during the first Five-Year Plan 3,000 enterprises,
etc., including 694 large industrial enterprises, The chief among these are 156 which are being
equipped by the fraternal aid of the Soviet Union. The building of these enterprises is a big step
forward in the development of the basic branches of industry and the raising of its technical level.
By the end of the Five-Year Plan China will have its own heavy industry, ensuring the basis for
industrialisation of the country. The volume of industrial production expressed in terms of value
will have doubled.
As a result of the fulfilment of the Five- Year Plan the production of means of production is
to increase by 126.5 per cent, the production of consumer goods by 79.7 per cent, and the relative
share of the means of production in the total amount of industrial production will grow from 39.7
per cent in 1952 to 45.4 per cent in 1957.

Socialist industrialisation is leading to an especially rapid growth of State

industry. In the course of the first Five-Year Plan the total value of the output of
the whole of Chinas industry will approximately be doubled, in comparison with
1952, that is the annual average increase is to amount to nearly 15 per cent;
while the total value of the output of State industry is intended to increase by
1957 2.3-fold, an annual increase of about 18 per cent. By the end of the Five-
Year Plan, State, co-operative and mixed State-and-private enterprise will be
responsible for 88 per cent of total industrial production, the share of private
enterprises being restricted to 12 per cent, with the majority of them working on
government orders.
The rapid development of industry requires considerable accumulation. The
resources for this purpose come, in the first place from accumulation made in the
State sector of the economy, and from revenues from domestic and foreign trade,
and secondly from taxes levied on capitalist enterprises and also taxes collected
from the population.
One of the main conditions for the successful development of Chinas
national economy is a rise in the productivity of labour of the workers and
peasants. Labour emulation is developing among the workers in State enterprise
for increasing production, improving the quality of output, economising material
and better utilisation of plant. The advanced workers in production receive
material encouragement. There are thousands of heroes of labour who have been
given awards.

The Gradual Socialist Transformation of Agriculture

The revolutionary agrarian reforms in the Chinese countryside are having a

substantial influence on the development of the productive forces of agriculture
and on the conditions of the peasant masses. For the first time in the history of
the country measures on a national scale are being taken to secure a considerable
development of agricultural production. Government aid in seed and credit is
given to needy peasants. Struggle against agricultural pests is organised.
Propaganda is being carried on for modern agricultural technical knowledge. With
the participation of broad masses of the peasantry, the Chinese Peoples
Government is carrying out irrigation works of great importance for the most
important agricultural regions of the country, and has relieved tens of millions of
people of the danger of floods.

An example of the great hydro-technical projects is the hydro-technical scheme in the Huai
basin, on which for three years 2 million men were at work. The courses of 77 rivers were cleared
and new channels made over a total length of 2,000 miles; 104 locks were constructed. One dam
alone, in the lower reaches of the river Huai, saves 20 million peasants from inundations.
According to incomplete data, from 1950 to 1953 the peasants themselves built more than 6
million small irrigation canals, ponds, and reservoirs, dug over 800,000 wells, restored or built
over 250 large irrigation works. As a result the area of irrigated land was increased by over 8
million acres.
In 1954 the construction was completed of the Kuanting water reservoir on the upper
course of the river Yungting (North China) which prevents flooding in the Peking and Tientsin
region.
In the first Five-Year Plan work will be undertaken to utilise the waters of the river Hwangho
(the Yellow River) and establish complete control over It. Dozens of huge dams will be built on this
river and its tributaries, to make possible the creation of a number of large reservoirs and hydro-
electric stations.
In 1952 agricultural output reached the highest level in the history of China, considerably
surpassing the peak pre-war figures of production. In 1952 the gross harvest of grain was 145 per
cent of the 1949 figure, and of cotton about 300 per cent. During the first Five-Year Plan the total
output of agriculture and rural auxiliary activities will increase, in terms of value, by 23.3 per cent.
By the end of the Plan the production of food will be 17.6 per cent greater than in 1952, of cotton
25.4 per cent, of jute and kenaf 19.7 per cent, of tobacco 76.6 per cent, of sugar-cane 85.1 per
cent, of sugar-bee 346.1 per cent; the area under oil-bearing crops will be 37.8 per cent greater.
It is estimated that in the course of two Five-Year Plans, or a little more, the yield from grain crops
will be brought up to 275-300 million tons, surpassing the 1952 level by 70 per cent, and
representing an annual average output of 10 cwt. of grain per head.

The Chinese Peoples Republic has achieved definite successes in

agriculture. However, the situation in the country is that the population is
enormous, the cultivated area insufficient natural calamities occur from time to
time, and farming methods are backward. Small peasant economy is not in a
position to meet the growing food requirements of the population, or the raw
material requirements of industry. There is an acute contradiction between the
low level of production of marketable grain and agricultural raw material, on the
one hand, and the rapid growth of the States demands for foodstuffs and raw
material, on the other. On the basis of small production it is impossible to prevent
differentiation taking place among the basic masses of the peasantry and to
radically improve their condition and assure them a well-to-do existence.
The victory of the peoples democratic revolution opened up a path of
gradual socialist transformation of Chinas agriculture. The Communist Party and
the Peoples Government of China have laid down, and are carrying out, a plan of
gradual voluntary transition of the peasants from small peasant private property
to large-scale collective socialist economy, on the principle that socialist
industrialisation of the country cannot take place in isolation, divorced from the
organisation of cooperation in agriculture.
The resolution of the Central Committee of the Chinese Communist Party
On the development of agricultural producers co-operatives (December 16,
1953) states:

With the aim of further developing the productive forces in

agriculture, the Party laid down the following central tasks for its work in
the countryside: using forms and methods understandable by and
acceptable to the peasants, to educate the peasant masses and promote
their gradual association and organisation; gradually to introduce socialist
re-organisation in agriculture with the aim of converting it from backward,
small commodity individual economy into advanced and highly productive
co-operative economy; gradually to end the disproportion in the
development of industry and agriculture, and to give the peasants the
possibility of gradually ridding themselves of poverty and winning a
prosperous and happy life. (Peoples China, No.8, 1954.)

The road of gradually bringing together the peasants for production laid
down by the Chinese Communist Party, passes through agricultural mutual-aid
production teams to small agricultural producer co-operatives of a semi-socialist
type, and so to large agricultural producer co-operatives of the higher type,
completely based on social ownership of the means of production and possessing
a completely socialist character.
Agricultural mutual-aid production teams unite a number of peasant
households to carry out joint work on certain agricultural tasks while retaining
private ownership of land and other means of production.
Many permanent teams combine the labour of the peasants not only in
agriculture but also in auxiliary trades. A certain division and specialisation of
labour exists within them. Some of these teams set up collectively-owned funds.
Thanks to the joint collective labour of the peasants, such forms of co-operation
have definite advantages over individual peasant farming. The lower forms of co-
operation prepare the individual peasants to pass over to agricultural producer co-
operatives.
Agricultural producer co-operatives of the semi-socialist type presuppose
the pooling of the land on a share basis, unified management on the basis of
collective labour, and the building up of certain common funds. In these co-
operatives, income is distributed according to the size of the land share and the
amount of work performed on the common farm. The land and other means of
production remain the private property of the members of the co-operative; the
peasants are remunerated not only for their land but also for the animals and
agricultural implements which they have handed over for joint use. Gradually, as
such co-operatives grow stronger, the share of income distributed according to
work done becomes greater and greater, remuneration for shares increasingly
loses its significance and socialised property grows steadily. The highest form of
agricultural co-operation is the producer co-operative of the type of the
agricultural artel in the U.S.S.R., based on common ownership of the means of
production, including the land and collective labour. In such agricultural producer
co-operatives of the higher type income is distributed exclusively on the basis of
work-days earned.
The transition from lower to higher forms of co-operative association takes
place gradually, allowing for different conditions in the economic, political and
cultural development of each area, with the strictest observance of the principle of
voluntariness and mutual aid. The Communist Party and the Government of the
Chinese Peoples Republic wage a resolute struggle against both drift and violation
of the principle in the development of co-operation between peasant farms.
Cooperation is coming to the Chinese countryside in conditions in which the
industrialisation of the country has only just begun, and consequently the
necessary basis has not yet been created for equipping agriculture with advanced
modern technique. The overwhelming majority of agricultural producer co-
operatives are still without the material basis of machine production. In only a few
of them is the land worked by machinery, supplied by the first machine and
tractor stations. The rest of the co-operatives cultivate the land either by hand or
with the aid of oxen, using antiquated agricultural implements or implements of
an improved type. Even in these primitive co-operatives, however, as a result of
the mere pooling of the peasants means of production and of collective labour
the yield of agricultural crops is, as a rule, higher than on individual peasant
holdings. This testifies to the high labour activity of the members of the co-
operatives, to the advantages of the co-operatives over the mutual aid teams and
still more over the individual farms. The Communist Party of China takes as its
starting-point that during the first two Five-Year Plans the main content of the
transformations in the countryside will continue to be social, with technical
changes only of auxiliary importance. During the third Five-Year Plan, however,
the transformation of the countryside will consist of the simultaneous carrying-
through of social and technical changes. Fundamental technical, re-equipment of
agriculture on a country-wide scale will take about four or five Five-Year Plans,
i.e., twenty to twenty-five years, to complete.
At the present time a mass movement for bringing about rural co-operation
has already begun in a number of agricultural areas, and this is rapidly spreading
throughout the country. The majority of the Chinese peasants are filled with
determination to take the socialist road. The socialist industrialisation of the
country and its successes strengthen this determination day by day, for the
peasants realise that only the road of uniting in co-operatives, the road of
socialism, will deliver them from need and lead to a radical improvement in their
lives. This mighty movement of the rural population of China, numbering more
than 500 millions, towards socialism has enormous international significance.
The reconstruction of approximately 110 million individual peasant farms on
collective principles and the carrying through of technical changes in agriculture
involves considerable difficulties. The Communist Party of China, at the head of
the broad, movement of peasants towards socialism, mobilises the masses to
overcome these difficulties without allowing the tempo in the growth of co-
operation in agriculture to decline.
Taking into account the great historical experience of the Soviet Union in
building socialism, the Chinese Communist Party is leading the peasantry in its
movement along the road to socialism. According to present plans, by the spring
of 1958 the agricultural co-operatives of a semi-socialist type will embrace 250
million persons, or 55 million peasant households, i.e., half the population of the
countryside. By the same time, changes of a semi-socialist character will
fundamentally have been completed in the rural economy of many counties and a
number of provinces, while in certain areas a small section of the co-operatives
will have been transformed from being semi-socialist to being fully socialist.
During the first half of the second Five-Year Plan, i.e., by 1960, semi-socialist
changes will fundamentally have been completed in the remaining half of
agriculture. By that time the number of agricultural co-operatives fully socialist in
character will have increased still further.
Alongside producer co-operation, co-operation between peasants in the
sphere of circulation is becoming increasingly widespread in the form of supply-
and-marketing and credit co-operatives. These forms of co-operation help the
peasants gradually to free themselves from exploitation by merchants and
usurers. They assist the peasants to sell foodstuffs and raw material to the State
and to obtain means of production and consumer goods, they supply credit at low
rates of interest and help to develop savings. They make easier the organisation
of producer, co-operatives among the peasants.
The State socialist agricultural undertakings are called upon to play a great
part in the socialist transformation of the peasant farms. By the beginning of
1955 there were over a hundred large mechanised State farms and over two
thousand county and district State farms, about a hundred machine and tractor
stations and many machine-hiring and agricultural stations. The State agricultural
undertakings give real help to the peasants, showing them in practice the
advantage of large-scale mechanisation of farms.
The gradual bringing about of the socialist transformation of agriculture is
taking place in conditions of acute class struggle. The kulaks are trying in every
way to disrupt the process of developing co-operation, to wreck the co-operatives
or to use them for their own ends. The bulk of the peasantry, overcoming the
resistance of the kulaks, are confidently advancing along the path of co-operation,
which corresponds to their vital interests.
An indispensable part of the socialist changes carried out in China in the
transition period is the development of co-operation in small individual handicraft
production. Directing the development of small handicraft production on to the
socialist path, the Chinese Peoples Government is organising the artisans into a
distinct type of artel, the handicraft co-operatives (production groups in handicraft
manufacture, supply and sales artels of handicraft co-operatives, handicraft
producer co-operatives).

The Rise of the Material and Cultural Standard of Living of the

Chinese People.

Socialist construction in the Chinese Peoples Republic is accompanied by

the improvement of living conditions for the workers, the peasants and the
intelligentsia. As a result of the carrying through of the agrarian changes the life
of the Chinese peasantry has considerably improved as compared with what it
was like before. Nevertheless, the peasant masses can deliver themselves
completely from need only by taking the socialist road the road of uniting in
agricultural co-operatives.
The position of the working class has considerably improved. In State and
private undertakings the working day is restricted to eight to ten hours (instead of
the former fourteen to sixteen hours days) and collective agreements between
the undertakings and the workers have been introduced. Workers and employees
wages in State and private undertakings are fixed on a single level for
corresponding categories. Throughout the whole country effectively functioning
trade unions have been established in which the majority of manual and clerical
workers are organised. In 1951 social insurance for workers and employees was
introduced.
The Chinese people have already achieved considerable successes in
cultural construction. Before the revolution workers and peasants had no access
not only to the middle and higher educational institutions but even to the
elementary schools. About 90 per cent of the population were illiterate. In the
Chinese Peoples Republic education has become accessible to the working
masses.

The improved material position of the Chinese working people is to be seen from the
considerable increase in the purchasing power of the population, which in one year alone, 1953,
increased by approximately 20 per cent.
The volume of retail trade was in 1953 180 per cent of what it had been in 1950 (in
comparable prices), In 1954 retail turnover was 12 per cent higher than in 1953. In 1952 the
wages of workers in all State enterprises were 60 to 120 per cent greater than In 1949. In 1953
they were on the average 5 per cent higher than in 1952 and in 1954 another 5.2 per cent higher.
In 1955 over 55 million children were being taught in elementary schools, i.e., nearly 2.4 times
the maximum number of pupils in elementary schools before Chinas liberation; 4.6 million pupils
were attending secondary schools, while 290,000 students were in higher educational institutions,
In 1954 over a tenth of all the adults and children in the country were studying in various evening
institutes.

The conversion of China from a backward agrarian country into a mighty

socialist power with a highly developed modern industry requires that serious
economic and financial difficulties should be overcome. The growth of productive
forces is of decisive significance for raising the welfare of the people, The Chinese
people take as their starting point that only by steadily expanding production, by
raising the productivity of labour, by carrying through a regime of strict economy,
will they gradually be able to get rid of the age-old poverty, consolidate the
historical con quests of the peoples revolution and ensure a happy future.
The revolution brought a radical change in the position of the women of
China. Women enjoy full political rights on the same basis as men, and actively
participate in the economic, social, and political life of the country. They receive
equal pay with mentor equal work. On the introduction of the agrarian reforms
women peasants received the same allotment of land as men. Great attention is
being paid to motherhood and child protection.
The victory of the peoples democratic revolution liberated the Chinese
people from national enslavement, and created the conditions for the economic
and cultural advance of all nationalities of liberated China on the basis of complete
equality of rights.
The victory of the revolution and the building of socialism in China is of
world-historical importance. Its importance is particularly great for the countries
of the colonial and semi-colonial world, whose political and economic situation is
similar to that which existed in China before the victory of the peoples revolution.
The example of the great Chinese people inspires the peoples of these countries
to resolute struggle against imperialism and feudalism, for national and social
liberation.

BRIEF CONCLUSIONS
(1) In the course of its development the Chinese peoples revolution
developed from a bourgeois-democratic into a socialist revolution, as a result of
which China entered on the transition period to socialism. The Chinese Peoples
Republic, which came into being as a result of the victory of the revolution is a
State of peoples democracy, led by the working class and based on the alliance of
workers and peasants. This State is successfully carrying out the functions of the
dictatorship of the proletariat.
(2) The peoples democratic State has carried out radical social and
economic changes. As a result of the revolutionary agrarian reforms, the land and
other means of production were confiscated from the landowners without
compensation and distributed among the peasants, according to the number of
persons, as their own private property. At the same time the peoples democratic
State was carrying out a number of socialist changes. The overwhelming majority
of undertakings in modern large-scale industry, the banks, the most important
and means of transport, the greater part of wholesale trade, an almost all foreign
trade, as a result of the expropriation of the compradore bourgeoisie and foreign
capital, passed into the hands of the peoples State. Thus the socialist sector of
the national economy came into being, embracing State enterprises and also co-
operative enterprises based completely on collective property of the working
people.
(3) The economy of the Chinese Peoples Republic is multi-form. The
socialist sector holds the leading place in it. Bordering on the socialist sector are
those forms of co-operation which are partly based on joint labour and have a
transitional semi-socialist character. In addition, there are petty commodity,
private capitalist and State capitalist sectors. The petty commodity sector, which
embraces the enterprises of the peasants and artisans, continues to occupy the
predominant place in the countrys economy. A considerable role is played in
Chinas industry and trade by private capital, which is controlled by the State and
utilised by the peoples democratic government to increase production of
manufactured goods. Various forms of State capitalism are also widespread. The
three basic forms of social economy in the transitional economy of the Chinese
Peoples Republic are socialism, petty commodity production and capitalism.
(4) The main classes of contemporary China are the working class and the
peasantry. The class struggle is waged between the working class, acting in
alliance with the main masses of the peasantry, on the one hand, and the urban
bourgeoisie and the rural kulaks on the otherbetween the socialist and the
capitalist elements of the national economy.
(5) The general line and central task of the Communist Party of China in the
transition period consists of gradually bringing about socialist industrialisation of
the country, gradually effecting the socialist transformation of agriculture,
handicraft industry and private trade and industry. The peoples democratic State,
in carrying through these changes, is creating the conditions for overcoming the
age-old technical and economic backwardness of the country, abolishing the
exploitation of man by man, eliminating poverty and need, and building socialist
society.
 CHAPTER XLIII

ECONOMIC COLLABORATION BETWEEN THE

COUNTRIES OF THE SOCIALIST CAMP

The Rise and Consolidation of the World Market of

Countries of the Socialist Camp

As has already been said, after the second world war the countries which
had fallen away from the world capitalist system and formed, together with the
Soviet Union, the socialist camp closed their ranks economically and built up close
collaboration among themselves. Parallel with the world capitalist market arose a
new world market of the countries of the socialist camp.

At the present time the countries participating in this market are: the Soviet Union, the
Chinese Peoples Republic, Poland, Czechoslovakia, the German Democratic Republic, Hungary,
Rumania, Bulgaria, Albania, the Mongolian Peoples Republic, the Korean Peoples Democratic
Republic and the Democratic Republic of Viet-Nam. In the territory of these States, equal to a
fourth of the land surface of the globe, lives more than one-third of the whole of humanity. After
the renewal of the temporarily broken trade relations between the States constituting the new
world market and Yugoslavia, broad prospects have opened up for developing economic co-
operation with that country.

The countries of Central and South-eastern Europe which fell away from the
capitalist system, immediately after the establishment of the peoples democratic
regime, began to establish close economic relations with the Soviet Union and
mutual collaboration among themselves. These relations, based on the principles
of fraternal mutual aid, played a big role in the rapid restoration of the economy
of the peoples democratic States and in the solution of other urgent economic
tasks of the post-war period. Following the formation in 1949 of the Chinese
Peoples Republic, a Great Power with a population of 600 millions came into the
socialist camp.
The economic collaboration of the States of the socialist camp entered on a
new stage when the countries of peoples democracy proceeded to the fulfilment
of their long-term national economic plans, aiming at building up the foundations
of socialism. This stage is characterised by the passing over to long-term
economic treaties and agreements regarding mutual deliveries of commodities.
Such treaties and agreements guarantee to each country the delivery over a long
period of definite types of machines, equipment, raw materials, and other goods
indispensable for the carrying out of their national economic plans. At the same
time the long-term agreements guarantee to each country the sale of its products
on the foreign market. The existence of stable and lasting economic relations
creates a clear perspective for the further development of their economy, and is
one of the most, important conditions for planned socialist construction in the
countries of peoples democracy.
Experience of economic collaboration between the countries of the socialist
camp proves that the world market of the countries of the socialist camp
possesses such resources that every country in this camp can find within its
bounds all that it needs for its economic development.
With the aim of planned economic collaboration between the countries of
the socialist camp, the Council of Mutual Economic Aid was established in 1949 on
the principle of complete equality of rights of all States participating in it. The
Council of Mutual Economic Aid organises the exchange of economic and technical
experience and the provision of mutual aid in raw materials, food, machines, and
equipment; it ensures the planned linking together and co-ordination of the
economic development of the States of the socialist camp, on the basis of a
rational division of labour between them. This fully accords with the interests of
the most rapid development of the productive forces of each of these countries,
and of the socialist camp as a whole.
The steady growth and strengthening of the world market of the countries
of the socialist camp serve as irrefutable proof of its historically progressive
character.
At the same time development of economic collaboration between the
countries of the socialist camp not only does not exclude the growth of their trade
connections with the countries of the capitalist part of the world, but creates
favourable prerequisites and conditions for it. The countries of the socialist camp
are endeavouring to develop business relations with the countries of the capitalist
camp on the principles of equal rights, mutual advantage and strict observance of
all obligations undertaken. They see these relations as a substantial factor in the
further progress of their own economies, the acceleration of their technical
progress and the raising of the standard of living of their population.
Proceeding from Lenins principle of peaceful co-existence of the two
systems and consistently fighting for peaceful co-operation between States with
different social and economic systems, the countries of the socialist camp are
striving to bring about an extensive development of trade with all States which,
for their part, are ready to increase their economic ties with the camp of
socialism. In the capitalist countries the desire for normalising and extending
trade with the States of the socialist camp is growingthe desire to overcome
the, artificially-created obstacles in the way of the development of international
economic co-operation, to do away with the numerous bans and restrictions
engendered by the cold war policy and the militarisation of economies. The
capitalist countries cannot but take into account that the countries of the socialist
camp constitute a stable market which is not subject to market fluctuations and
economic crises of overproduction. The countries of Western Europe are especially
interested in trade with the countries of the socialist camp.
At the same time the development of international economic co-operation
between the States of the two camps constitutes an important factor in
strengthening peace, relaxing international tension and establishing an
atmosphere of international confidence.
Of great importance is the steady extension of economic ties between the
States of the socialist camp and the underdeveloped countries. For these
countries economic co-operation with the States of the socialist camp is one of
the principal ,means of securing their economic independence. While the
capitalist monopolies invariably strive to enslave the underdeveloped countries
economically, the Soviet Union and the peoples democracies strictly maintain in
their economic relations with these countries the principles of non-interference m
the internal affairs of other peoples, co-operation on the basis of equal rights, and
mutual benefit. The consistent implementation of these principles will facilitate
increased co-operation between the underdeveloped countries, which are striving
to emerge as quickly as they can from their State of backwardness, and the
countries of the socialist camp.

The Character of the Economic Relations between the

Countries of the Socialist Camp

The countries of the socialist camp differ in regard to the level of their
economic and technical development. Nevertheless, the mutual relations between
these countries are determined by one most important and decisive factorthat
they are all following the path of building socialism and communism. In the
economy of the countries of peoples democracy the leading place is occupied by
the socialist forms of economy. As a result of this, in the sphere of mutual
relations between the countries of the socialist camp the economic laws of
capitalism, expressed in the exploitation of man by man, competition and anarchy
of production, have lost their validity. In this camp relations between the States
are based on the economic laws of socialism. The economic collaboration of the
countries of the socialist camp represents a new type of international relations,
which history has never known before. In the process of strengthening and
extending this co-operation a socialist system of world economy is being formed
and developed.
In accordance with the basic economic law of socialism, economic relations
between the countries participating in the new, world market are subordinated to
the task of the fullest satisfaction of the constantly growing needs of the working
people by means of the uninterrupted growth and perfection of socialist
production, on the basis of the highest technique. For this reason, in the socialist
camp there are not and cannot be economic penetration, unequal exchange,
competitive struggle, exploitation, and the enslavement of weak States by
stronger ones. The mutual relations of the countries of this camp are
characterised by comradely collaboration and mutual aid.
The most important peculiarity of the socialist camp is the planned
character of the economic connections of the countries belonging to it. In
accordance with the law of planned, proportional development of the national
economy, the economic collaboration of the countries of the socialist camp is
developing on the basis of the mutual linking together of the national economic
plans. The plans of economic collaboration are taken. into account in the State
plans of development of the national economy of the Soviet Union and the
countries of peoples democracy. Therein lies the tremendous advantage of the
world market of the countries of the socialist camp in comparison with the world
capitalist market, subject to periodical crises of overproduction. Basing
themselves on their own resources and on fraternal mutual aid, the countries of
the socialist camp are securing an uninterrupted growth of the national economy
and a systematic raising of the material well-being of the working masses. This in
turn provides a secure basis for the constant extension of the new world market,
which is free from the sales difficulties inherent in the world capitalist market.
The planned character of the economic development in the countries of the
socialist camp guarantees the possibility of the most rational use of existing
resources, with the aim of the most rapid development of the productive forces
and an uninterrupted advance of the economy and in the well-being of the people.
The countries of the socialist camp are interested in the development in every
way of the productive forces of each one of them since such development
strengthens the economic might of the camp as a whole. This creates
extraordinarily favourable conditions for enlarging and strengthening economic
collaboration between the States of this camp.
The development and strengthening of economic collaboration between the
countries of the socialist camp are proceeding on the basis of a new, socialist
international division of labour, which is radically different from the international
division of labour in the capitalist system of world economy.
Unlike the conditions prevailing under capitalism, division of labour between
the States of the socialist camp is carried out not by means of compulsion and
force, not by fierce competitive struggle, but by collaboration between States with
equal rights.
Division of labour between the countries of the socialist camp takes into
account the possibilities of each country and leads to their general advance. Each
country apportions part of its resources to satisfying the needs of other countries,
and in its turn relies on their fraternal help. The rational division of labour
between the countries of the socialist camp helps in the all-round development of
their productive forces on the basis of priority growth of the production of means
of production, since each country can, in a planned way, not only mobilise its own
resources but also make use of the resources of the fraternal countries in the
interests of a common advance.
At the same time, the socialist division of labour allows the individual
countries which supplement each other as participants with equal rights in the
general system of the socialist camp, to have the possibility of accelerating the
pace of their economic development, while saving vast resources and efforts and
avoiding unnecessary overlapping in the development of the various branches of
the national economy. Each country can concentrate its efforts and resources on
developing those branches for which it has the most favourable natural and
economic conditions, production experience and cadres. Along with this, the
different countries can avoid having to cope with the production of those types of
products the demand for which is. met by supplies from other countries. In this
way there is achieved a broad specialisation and co-operation in industrial
production, and the most useful division of labour in the production of food and
raw materials.
Such specialisation and co-operation are effected through the linking
together of plans of capital construction, and by the conclusion of long-term
multilateral and bilateral agreements on mutual aid and collaboration.
Specialisation and co-operation have particularly great importance in the most
important branches of heavy industryengineering and metallurgywhere,
thanks to this, great possibilities are opening out of considerably reducing the
costs of production. In agriculture the establishment of the appropriate division of
labour is creating favourable conditions for the most rapid increase of production
in all its branches, by raising the productivity of labour and a rational use of
agricultural land.
As a result of successful economic co-operation, possibilities for planned co-
ordination of the national economies of the countries of the socialist camp have
considerably increased. Work is proceeding at the present time, in the European
peoples democracies as in the Soviet Union, on the drawing-up of Five-Year Plans
for 1956-60. Thus, the long-term plans of these countries will embrace one and
the same period of time. This creates conditions for closer co-ordination in
economic construction in the Soviet Union and the European peoples
democracies.
In the mutual relations between the countries of the socialist camp, for the
first time in history, an end has been put to the contradictions, insoluble for
capitalism, between the objectively progressive tendencies to economic linking
together of separate countries, and the imperialist methods of this linking
together, effected by means of financial subjection and colonial enslavement of
the economically weak peoples by the capitalistically developed States.
Economic relations between developed and backward countries in the
capitalist camp are built on the principle of domination and subjection, and reflect
above all the relative strength of the partners. The imperialist States, pumping
out valuable raw materials from the underdeveloped countries, colonies and semi-
colonies, strive to perpetuate their backwardness and dependence as suppliers of
agricultural products and raw materials for the economy of the metropolis.
Economic relations in the Socialist camp are characterised by all-round
mutual aid, to raise the underdeveloped countries to the level of the advanced
ones. As a result of the socialist international division of labour, the liquidation of
economic backwardness and one-sided economic development inherited by the
countries of peoples democracy from capitalism is facilitated favourable
conditions for their industrialisation are created their economic self-reliance and
independence of the capitalist world is strengthened, their economy is rapidly
advancing and the well-being of their population is rising.
In the socialist camp the relations between the countries are the
embodiment of the principles of proletarian internationalism, the international
solidarity of the working people. These mutual relations are founded on
disinterested mutual support, on respect for their State sovereignty and the
national interests of each country. The fraternal friendship and close collaboration
of the countries of the socialist camp are a most important source of the
unbreakable might of this camp, the determining condition for successful socialist
construction in these countries.

The Basic Forms of Economic Collaboration of the Countries of

the Socialist Camp

The principal forms of collaboration of the countries of the socialist camp

are foreign trade, the granting of credits, scientific and technical aid, collaboration
in the training of cadres and exchange of experience in economic construction.
Among these forms of economic collaboration foreign trade is of basic importance.
The foreign trade of the countries of the socialist camp is; built on principles
completely different from those governing foreign trade on the world capitalist
market. In the capitalist world foreign trade, concentrated in the hands of the
monopolies, is subordinated to the interests of extracting the maximum profit, by
means of unequal exchange and other methods of plundering and enslaving the
backward and dependent countries. The foreign trade of the countries of the
socialist camp is a State monopoly (U.S.S.R. and European countries of peoples
democracy), or is carried on under the strict control of the State (Chinese Peoples
Republic), and serves the interests of a general advance, the acceleration of the
economic development of the countries of this camp, and the raising of the
standard of living of their population.
Each of the countries participating in the new world market, realising,
thanks to foreign trade, an ever-increasing part of the products of its national
economy, receives in return ever greater material values: industrial equipment,
raw materials and other commodities required for its economic development.
Each country imports commodities which it requires, and exports commodities
needed by other countries; and none of the parties to the exchange forces on any
partner goods which it does not require, as is often the practice on the capitalist
market.
Prices of commodities on the world market of the countries of the socialist
camp are stable. They are fixed on the basis of voluntary agreements between
parties having equal rights, with strict observance of their mutual interests, which
rules out any kind of discrimination and inequality of exchange.
The uninterrupted growth of the foreign trade of the countries of the
socialist camp is clear evidence of the development and growing strength of the
new world market.

The volume of the Soviet Unions foreign trade in 1954 was four times pre-war, while the
foreign trade of the capitalist countries had increased only a little more than one and a half times
during that period.
The foreign trade turnover of the Chinese Peoples Republic in 1954 was double what it had
been in 1950. The foreign trade turnover of the six European peoples democracies (Poland,
Czechoslovakia, Hungary, Rumania, Bulgaria and Albania) was in 1954 more than 70 per cent
greater than in 1948. Compared with 1946 foreign trade turnover in 1954 had increasedin
Poland about 6.5-fold, in Czechoslovakia about 4-fold, in Hungary 14.5-fold, inn Rumania 16-fold
in Bulgaria 3.5-fold. In the German Democratic Republic it was more than 25 times what it had
being in 1947.
Foreign trade ties between the countries of the socialist camp themselves are developing at
especially rapid rates. In 1938 the U.S.S.R.s total trade with Poland, Czechoslovakia, Hungary,
Rumania, Bulgaria, and Albania accounted for barely 1.5 per cent of its foreign trade turnover. In
1954, however, trade with these countries was 40 per cent of the foreign trade turnover of the
U.S.S.R. In 1938 U.S.S.R. trade with China amounted to 4 per cent of the Soviet Unions foreign
trade turnover; in 1954 it was 18 per cent.
In 1954 the share of the countries of the socialist camp in the total trade turnover of Poland
was more than 70 per cent, of Czechoslovakia about 75 per cent, of Rumania 82 per; cent, of
Hungary 70 per cent, of Bulgaria 87 per cent, of Albania nearly 100 per cent, and of the German
Democratic Republic over 75 per cent.
The Soviet Union, having at its disposal a highly developed heavy industry, particularly in
engineering, is supplying great quantities of the most diverse equipment to the countries of
peoples democracy. Between 1948 and 1954 the supply of industrial equipment and machines
from the Soviet Union to the countries of people s democracy increased more than ten-fold.
Machines, equipment and other means of production have an important place also in the
exports of other countries of the socialist camp. Czechoslovakia exports products of the
engineering, metallurgical and chemical industries and coke, as well as foot-wear. Poland supplies
hard coal, coke, rolled metal, zinc, railway rolling stock, besides food products. Hungary exports
metal-cutting lathes, turbines, transformers, cranes, aluminium, bauxite, and food-stuffs. Oil, oil
products, and timber occupy an important place in Rumanias exports. Bulgaria exports lead and
zinc concentrates, cement, timber, chemicals, fruit, tobacco, and wines. Albania supplies ores, oil,
bitumen, ores, skins, and fruit. The German Democratic Republic exports products of the
engineering, electro-technical, and chemical industries, precision tools, and optical instruments.
The Chinese Peoples Republic exports industrial and agricultural raw materials and food products.

An important form of economic collaboration between the countries of the

socialist camp is the provision of credits. In the capitalist world credit relations
serve as one of the most effective instruments for the economic robbery of
underdeveloped countries by the monopolies of the imperialist Powers. The
provision of credits usually carries with it the obligation to spend the sums
advanced in the purchase of goods from the creditor country. In this way the
imperialists unload on the debtor countries their old stocks of goods, in the first
place consumer goods, at monopoly high prices. In the socialist camp the
provision of credits is not linked with any privilege for the creditor. Credits are
provided chiefly for purchasing equipment and machines and other means of
production, but also for the purchase of those consumer goods which are not
produced in the country in question but are required for its population. The States
which take up loans pay them off, with the interest on them, by means of goods
of the type normally exported by them, and at fair prices.

Thus, under the credit agreement concluded on February 14, 1950, the Soviet Union
undertook to grant the Chinese Peoples Republic a long-term credit on advantageous terms (from
1 per cent per year) for 300 million American dollars, to be utilised over a period of five years from
January 1, 1950, in equal annual instalments, for acquiring from the Soviet Union equipment and
materials, including equipment for electric power-stations, metallurgical and engineering works,
equipment for coal and ore mines, for railways and other means of transport, rails and other
materials necessary for the restoration and development of Chinas national economy. In 1954 the
Soviet Union granted the Chinese Peoples Republic a long-term credit for 520 million roubles.
Under economic agreements in 1953 and 1954, the Soviet Union, rendering aid to China in the
carrying-out of its first Five-Year Plan undertook to be responsible for planning and supplying
equipment for the building or reconstruction of 156 very large industrial enterprises. The Soviet
Union is helping China to build, equip and start up these enterprises.
On the basis of long-term credit agreements, the Soviet Union is supplying large quantities
of machinery and equipment to Bulgaria, Albania, and other countries. Thanks to Soviet credits,
Albania has received complete equipment for whole factories and works: for a textile combine,
sugar and cement works, for an oil refining works and other undertakings. Bulgaria has received
complete equipment for the Stalin chemical combine, for the Chervenkov thermo-electric station,
for a metallurgical and lead and zinc works and for a number of other undertakings.

Scientific and technical aid is of tremendous importance for the economic

advance of the countries of the socialist camp. This help is given in many different
forms, in the first place in the form of handing over patents, licences, and
technological documents covering the most modern inventions and technical
improvements, mutual exchange of technical experience in production, joint
exploitation and utilisation of natural resources, joint construction of industrial
undertakings, mutual aid in specialists.
The countries of the socialist camp furnish one another with this extensive
scientific and technical aid on the basis of close collaboration and mutual
assistance.
The Soviet Union is helping the countries of peoples democracy to erect
huge modern undertakings and whole branches of industry, in the first place, of
heavy industry, which is the basis for the economic development of all the
countries advancing towards socialism. In the field of technical aid the Soviet
Union provides industrial undertakings and cultural institutions, built according to
Soviet designs, with the newest and best equipment. The Soviet Union passes on
to the other countries of the socialist camp scientific inventions, patents, and
licences covering the most modern productive technical achievements, for which
they pay only the actual expenses incurred in the planning and preparation of the
scientific documentation. Soviet specialistsengineers and technicianshelp the
countries of peoples democracy to carry on research work, to exploit local
deposits of useful minerals, and to carry out complicated assembly and
construction work on a number of large new projects.
Extensive exchange of the achievements of science and technique between
the countries of the socialist camp is playing an important part in hastening
technical progress in all these countries, ensuring rapid introduction of the most
advanced kinds of equipment and methods of production into industry, transport
and agriculture.
Of outstanding importance for the development of the productive forces of
the peoples democracies is the decision of the Soviet Union to render these
countries scientific, technical and industrial help in setting up experimental
centres for research in the field of nuclear physics and the use of atomic energy
for peaceful purposes. The peoples democracies will be provided with the
necessary amount of fissionable material for atomic piles and experimental work,
and they in their turn will supply the Soviet Union with appropriate raw materials.

Among the number of very large industrial undertakings, originated and built in the
European peoples democracies with the assistance of the Soviet Union, are the Lenin metallurgical
combine, a factory for light cars and trucks, and an aluminium works in Poland; the Gottwald
metallurgical combine in Czechoslovakia the Stalin metallurgical combine in Hungary; the Lenin
hydro-electrical station and a tractor works in Rumania; the Stalin chemical combine and the Lenin
metal works in Bulgaria; the Lenin hydro-electrical station in Albania; and a number of other
combines, heavy industrial enterprises, and power-stations.
Broad technical assistance by the Soviet Union is one of the most important conditions for
opening up to the countries of peoples democracy the possibility of setting up in a short time new
manufactures and whole branches of industry which these countries did not have. Thus Rumania
not only extended its oil-extracting industry but also set up its own oil machinery industry,
producing nearly all the equipment necessary for extracting oil and a considerable part of the
complicated apparatus needed for oil refining. It is a unique event in the world for a small country,
possessing an abundance of oil, to be able to set up its own oil machinery plant. Small countries
with oil resources in the capitalist world mercilessly exploited by American and British monopolies
could not even dream of such things.
By the Czechoslovak-Hungarian agreement, Czechoslovakia is given the possibility of
setting up an aluminium industry based on Hungarian bauxite: Poland helped Czechoslovakia to
organise the production of carbide and to construct a zinc smelting works. At Nowy Dwory
(Poland) Poland and Czechoslovakia jointly constructed an electric power-station supplying power
to both countries. By granting to Czechoslovakia a long-term lease of part of the port of Szczeczin,
Poland provided her with an outlet to the sea.

Closely connected with scientific and technical collaboration of the countries

of the socialist camp is collaboration in the training of cadres. In the higher
educational institutions of the Soviet Union, Czechoslovakia and Poland, a large
number of students from fraternal countries are given systematic training. Young
specialists from these countries acquire practical experience in factories and
scientific institutions.
On an ever wider scale study and exchange of experience in a very wide
range of production, technical and organisational questions is taking place. With
this aim numerous delegations of public men, business managers and engineers
are being exchanged and industrial exhibitions organised, etc.
An important factor in strengthening economic co-operation between the
peace-loving countries is the development of foreign trade and other economic
ties by the Soviet Union and the peoples democracies (Czechoslovakia, Poland,
Hungary) with economically underdeveloped countries. These ties are being
steadily developed on the basis of commercial and other agreements which
facilitate the growth of the productive forces and improvement in the well-being
of the peoples.

Thus, the Soviet Union is building in India under the provisions of the Soviet-Indian
agreement of February 2, 1955, on long-term favourable credit conditions, a large metallurgical
works with a capacity of a million tons of steel per year. The Soviet Union is supplying all the
equipment and rendering all the technical help needed, including despatch of highly qualified
specialists, and also training Indian personnel both in India and in the Soviet Union.

The progress of economic collaboration between the countries of the

socialist camp, the steady growth of the many-sided economic relations both
among themselves and between them and the capitalistic countries facilitate the
consolidation of peace and friendship between the peoples.

BRIEF CONCLUSIONS
(1) The mutual economic relations between the countries of the socialist
camp represent a completely new, socialist type of international relations. At a
time when, in the capitalist world, economic relations between countries are
founded on the principles of the rule of the strong countries over the weak, the
struggle of all against all, on anarchy and planlessness, economic relations in the
socialist camp are built up on the principles of complete equality on both sides
and mutual benefit, respect for the State sovereignty of all peoples, large and
small, fraternal mutual assistance, planning and organisation of all economic
connections. Relations between the countries of the socialist camp are the
embodiment of the principles of proletarian internationalismthe international
solidarity of working people.
(2) Economic collaboration between the countries of the socialist camp is
based on the economic laws of socialism. In conformity with the basic economic
law of socialism and the law of planned, proportional development of national
economy, the economic ties between the countries. of the socialist camp are
subordinated to the general aim of the fuller satisfaction of the constantly growing
needs of the whole of society, through a continuous increase in production, and
develop in a planned manner on the basis of equality of exchange. All this secures
the constant extension of the capacity of the world market of. the countries of the
socialist camp and eliminates the possibility of economic crises. The planned
character of the economic development of the countries of the socialist camp
guarantees the possibility of the most expedient utilisation of their resources. The
economic collaboration of the countries. of the socialist camp is achieved on the
basis of a new, socialist international division of labour.
 (3) Foreign trade, rapidly growing from year to year, occupies chief place
among the various forms of economic collaboration of the countries of the
socialist camp. Of great importance are such forms of economic collaboration as
the provision of credits and loans, scientific and technical aid, collaboration in the
training of cadres and exchange of experience of economic construction. All these
forms of economic collaboration of the countries of the socialist camp are
developing with the aim of achieving the most rapid growth of the productive
forces, the steady growth of the economy and of the well-being of the peoples.

CONCLUSION
Marxist-Leninist political economy has passed through more than a century
of development. As with Marxist-Leninism as a whole, Marxist-Leninist political
economy bears a creative, operative character. Thoroughly opposed to
dogmatism, it develops in close and unbreakable association with the practice of
the labour movement, with the practical struggle of the working class and all
working people for socialism and communism, and is enriched by new theoretical
principles on the basis of the generalisation of new historical experiences.
Marx and Engels gave a scientific analysis of the fundamentals of capitalism
as an historically transitory mode of production, and disclosed the economic laws
of its rise, development and downfall. In their Manifesto of the Communist Party,
Capital, Critique of the Gotha Programme, Anti-Dhring, and other works, Marx
and Engels revealed the historical role of the proletariat as the grave-digger of
capitalism and the builder of socialist society. They created the theory of the
proletarian revolution, proved the economic necessity of the transition period
from capitalism to socialism as a distinct historical period of the revolutionary
transformation of capitalist society into socialist society, and in general outline
indicated the character of the two phases of development of communist society.
The most important thing in Marxism is its teaching on the dictatorship of
the proletariat as a State of a new type, playing a decisive role in the socialist
transformation of society. Marx and Engels outlined a programme of the most
important measures to be carried through by the proletarian dictatorship:
expropriation of the expropriators, the replacement of private ownership of the
means of production by social ownership, the abolition of exploitation of man by
man and of the exploiting classes, and the ensuring of a rapid rise of the
productive forces of society.
Marx and Engels foresaw that in socialist society anarchy of production
would be replaced by planned development of social economy, and the principle of
distribution according to work would be realised. Only with the further rapid
development of the productive forces, with the growth of an abundance of
products, with the transformation of work into the prime necessity of life for man,
will there be completed the transition from the lower stage of communism to the
higher stage, when the ruling principle of social life will be: From each according
to his ability, to each according to his needs.
Lenin, developing Marxist political economy, enriched it by the scientific
investigation of the monopolist stage of capitalism, imperialism, and of the
general crisis of capitalism. The most important conclusion from this investigation
was the new, completed theory of the socialist revolution, the theory of the
possibility of the victory of socialism first of all in a few countries or even in one
country alone.
Guided by the thesis of Marx and Engels on the expropriation of the
expropriators as the primary task of the proletarian revolution, Lenin, in his On
the Tasks of the Proletariat in the Present Revolution, The Threatening
Catastrophe and how to Combat It, Will the Bolsheviks Maintain State Power? and
other works, provided a scientific foundation for the programme of nationalisation
of the land, large-scale industry, the banks and foreign trade, as the most
important measures of the proletarian dictatorship aiming at the seizure of the
key positions of the economy.
On the basis of the scientific generalisation of the historical experience of
the great October Socialist Revolution and the practice of socialist construction in
the U.S.S.R., Lenin enriched Marxism as a whole, and Marxist political economy in
particular, by a profound analysis of the laws of the socialist transformation of
society. In his State and Revolution, The Proletarian Revolution and Kautsky the
Renegade, Left-Wing Communism: an Infantile Disorder, Economics and Politics
in the Epoch of the Dictatorship of the Proletariat, and other works, an all-round
investigation is provided of the question of the dictatorship of the proletariat.
Lenin defined the dictatorship of the proletariat as a special form of class alliance
of the proletariat with the main masses of the peasantry, under the leadership of
the proletariat, and as the highest type of proletarian democracy, expressing the
interests of the working masses. He revealed the content and historic mission of
the dictatorship of the proletariat, defining its three basic aspects: (a) suppression
of the exploiters, (b) leadership of the working masses, and (c) the building of
socialist society.
Lenin investigated the question of. the nature and role of social classes and
the class struggle in the transition period from capitalism to socialism, giving a
scientific analysis of the economic and class structure of society in this period. He
illuminated in all its aspects the question of the alliance between the working
class and the basic masses of the peasantry and of the leading role of the working
class in this alliance. Lenin indicated the way to the liquidation of the exploiting
classes and the abolition of exploitation of man by man in the period of the
dictatorship of the working class, showing that the building of socialism is
accompanied by sharp class struggle against the exploiting classes.
In his Next Tasks of Soviet Power, How to Organize Emulation, The Great
Beginning, On the Single Economic Plan, On the Food Tax, On Co-operation and
other works, Lenin provided the theoretical basis for and indicated the path of
economic policy in the transition period from capitalism to socialism. Lenin was
the author of the concrete plan for building socialism in the U.S.S.R., which was of
world historical importance. The most important parts of this plan were the
socialist industrialisation of the country and the collectivisation of agriculture.
Lenin showed that, in order to build the foundations of socialist economy and to
safeguard the economic independence of the Soviet land from world imperialism,
it was necessary to overcome, in the shortest possible time, the age-old
backwardness of Russia and to create a socialist heavy industry. Lenin put forward
the co-operative plan of gradually drawing the peasants into the stream of
socialist construction, at first on the basis of a trade bond then also by a bond
between industry and agriculture in the field of production.
By drawing general conclusions from the practice of socialist construction,
Lenin worked out the foundations of the basic economic law of socialism, the law
of planned development of the national economy, and other laws. Lenin laid down
the principles of socialist management, revealed the significance of personal
material incentive in increasing socialist production and creatively developed the
Marxist principle of distribution according to work under socialism, of wages, etc.
Lenin in his works showed the necessity for the development of trade and the
utilisation of money in developing Soviet economy, and in strengthening the bond
between town and country. Lenin, with scientific discernment, foresaw that the
socialist revolution, carrying out the great change from compulsory labour for the
exploiters to free labour for themselves, for the whole of society, would give birth
to a revolutionary enthusiasm among the masses which was unprecedented in
history, and would for the first time create the possibility of emulation on a broad
mass scale. He elaborated the questions of the strictest national accounting and
control over production and distribution of products of the establishment of a new
socialist labour discipline, and of economic accounting.
Lenins works contain a further creative development of the basic principles
of Marxism concerning the way to build communist society, the role of
electrification and a rise in labour productivity in creating the material production
basis of communism, on the conditions for the transition to the communist
principle of distribution according to needs.
Basing himself on the works of the creators of genuine scientific political
economyMarx, Engels, and LeninStalin advanced and developed a number of
new principles in economic science. Stalins works given an analysis of
contemporary monopoly capitalism; they paint a picture of the general crisis of
the capitalist system as the all-round crisis of capitalism, embracing both its
economics and politics.
On the basis of generalisation from the experience of socialist construction
in the U.S.S.R., Stalin worked out a number of problems of the political economy
of socialism. Proceeding from Lenins teachings, Stalin, in his reports to Party
congresses and conferences, in his works Problems of Leninism, Economic
Problems of Socialism in the U.S.S.R., etc., showed concretely ways and methods
of socialist construction, of effecting the socialist industrialisation of the country
and the collectivisation of agriculture. Basing himself on the fundamental
principles laid down in the works of Marx, Engels and Lenin, Stalin formulated the
basic economic law of socialism and the law of planned, proportionate
development of the national economy.
In the works of Stalin there are to be found his further elaboration of
Lenins propositions on the methods of socialist management, on the necessity of
utilising the law of value and money, on economic accounting, on the. principle of
the personal material interest of the workers in the results of their labour, on the
superiority of the socialist system of economy over the capitalist system.
Stalin developed and made concrete Marxist-Leninist teachings on the
transition from socialism to communism: on the State under communism, on the
effacing of the essential differences between town and country and between
mental and physical labour.
Marxist-Leninist political economy is being further developed on the basis of
analysing the economic processes taking place in the capitalist countries,
generalising the practice of communist construction in the U.S.S.R. and the
building of socialism in the countries of peoples democracy. It is being enriched
by the new experience of the revolutionary struggle of the working class and
broad sections of working people in the capitalist countries against oppression and
exploitation, and also by the experience of the national liberation struggles of the
colonial peoples.
The creative development of Marxism-Leninism, the theoretical
generalisation of the practice of the struggle for communism, is vividly reflected in
the decisions of the Communist Party of the Soviet Union and of the fraternal
Communist and Workers Parties of other countries. New ideas are being
contributed to economic theory by the leaders of the proletarian parties of all
countries, closely linked with the masses of the working people and expressing in
their works the progressive tendencies of the development of material life of
society.
Marxist-Leninist political economy, as the most important component part of
Marxism-Leninism, is the most powerful ideological weapon of the proletariat in
its struggle against capitalism for socialism. It is a genuinely scientific political
economy, as it expresses the interests of the working class and all progressive
forces of humanity interested in the objective study of the laws of the economic
development of society, leading inevitably to the downfall of capitalism, to the
victory of communism.
Marxist-Leninist political economy exposes the anti-scientific, reactionary
character of bourgeois political economy. It exposes the class meaning of the
reformist views of the petty-bourgeois economists, who bring grist to the mill of
bourgeois political economy. It arms the working class with knowledge of the
economic laws of the development of society, and makes it possible for the
revolutionary Marxist-Leninist parties to build their policy on scientific
foundations.
What basic conclusions result from the study of political economy? What
does political economy teach?
(1) Political economy teaches above all that the economic development of
human society is a process conforming to law. The rise and development of each
mode of production, the replacement of one mode of production by another, take
place not by the arbitrary will of man but in virtue of the operation of objective
economic laws.
The laws of political economy, just as the laws of every other science, are a
reflection in the brains of people of objective realities, conforming to law. In
addition, political economy provides a deep and all-round justification for the most
important Marxist proposition that the principal force in the development of
society, the genuine creator of history, is the people the working masses. It shows
the mobilising, organising, and transforming role of advanced ideas, arising from
the urgent needs of the development of the material life of society. Political
economy, revealing the laws of social production and the distribution of material
wealth at the various stages of development of society, provides the key to an
understanding of the whole process of development of human society as a single
process, conforming to law in all its many-sidedness and contradictions.
Human society is developing from lower forms of its existence to higher
ones. Each mode of production constitutes a definite stage in the advancing
movement of society, in the development of its productive forces and relations of
production. Prior to the socialist revolution the development of society proceeds in
such a way that the relations of production of the new social economic order,
arising to replace the old out-lived order, for a certain period of time assist the
development of the productive forces, but later on become transformed into a
fetter on them. There then takes place a change from one economic order of
society to another, higher economic order. In a society divided into antagonistic
classes, this change is brought about through the class struggle, by means of
social revolution, overthrowing the power of the out-of-date ruling class and
consolidating the power of the new, advanced class.
Political economy, studying comprehensively the rise, development and
downfall of social-economic formations based on private property in the means of
production, lays bare the economic roots of the class struggle. It shows that the
creators of wealth are the working masses, but the fruits of their labour are
appropriated by the exploiting classes. This means that the class struggle is
conditioned by the vital material interests of definite classes and by the laws of
economic development of each particular mode of production.
Each new social order based on private property in the means of production
slave society, feudalism, capitalismconsolidated the power of the exploiters,
changing only the forms of exploitation and oppression of the working people. The
whole course of the economic development of society bears witness to the fact
that capitalism is the last social order based on the exploitation of man by man.
Political economy shows that, in its monopolist stage, capitalism has already for a
long time been transformed into a reactionary order, holding back the further
advancing movement of society. To replace moribund capitalism there is
advancing a new social ordersocialism, signifying the abolition of exploiting
classes, the ending of the exploitation of man by man.
 The history of the development of human society completely confirms the
correctness of this scientific conclusion of Marxist-Leninist political economy.
Socialist society has been built in the Soviet Union. With the victory of socialism in
the U.S.S.R. the anti-scientific inventions about the eternal nature of private
property in the means of production and the capitalist order were completely
exposed. The successful building of socialism is in progress in the European
countries of peoples democracy. The great revolutionary transformations in
Chinas, economy have created the preconditions for the building of socialism
which is in progress in this, the largest country of the East. The Soviet Union is
carrying out the gradual transition from socialism to communism. The U.S.S.R.
possesses all that is necessary for communist society to be built. Communist
society, the first stage of which is socialism, is the ultimate aim of the struggle of
the working people of all countries.
Political economy gives the working class and all working people confidence
in the victory of communism, showing that this victory is determined by the whole
preceding course of historical development.
(2) Political economy, from the experience of the U.S.S.R. and the countries
of peoples democracy, teaches how the working people of the capitalist countries
can free themselves from capitalist bondage. It shows that the enslavement and
impoverishment of the working people in the bourgeois countries are not the
result of accidental causes, but are rooted in the capitalist system of economy and
are the outcome of the economic laws inherent in this system. Crises,
unemployment, the impoverished condition of the masses of the people, cannot
disappear without a change in the very basis of production relations, that is,
without the means of production passing from the private ownership of the
capitalists and landowners into the social ownership of the working people.
Disclosing the antithesis between the basic principles of bourgeois and
socialist economy, and the irreconcilability of the class interests of the bourgeois
on the one hand and those of the proletariat and all working people on the other,
political economy shows the impossibility of the peaceful growing of capitalism
into socialism. No efforts of any kind to reform to improve capitalism can put an
end to the system of wage slavery. The great October Socialist Revolution proved
irrefutably that only by liquidating the very foundations of capitalism can the
working class and the working peasantry liberate themselves from bondage to the
exploiters and enter on the road to a free, prosperous and cultured life. Historical
experience fully confirms the truth of the Marxist proposition that the socialist
revolution is inevitable, that to change from capitalism to socialism is impossible
without the setting up of the power of the working people, without the
dictatorship of the proletariat, without the alliance of the working class and the
peasantry. For the achievement of this aim the existence of a Communist Party,
capable of preparing the proletariat and the working masses for the decisive
struggle with the bourgeoisie and organising the victory of the socialist revolution,
is indispensable.
Political economy shows that the plunder and enslavement of the colonial
peoples by the metropolitan countries arises from the very essence of
imperialism, closely linked with the feudal landowning and bourgeois compradore
circles of the colonial countries. The peoples of the colonial and semi-colonial
countries can free themselves from robbery, poverty, and backwardness only by
means of liberation from the yoke of imperialism and its local vassals, by
abolishing the relics of feudalism and carrying out radical democratic changes.
The colonial countries, having broken with the imperialist system and secured
their independence, can, with the economic support of the U.S.S.R. and other
countries of the socialist camp, escape the painful path of capitalist development
and gradually create the preconditions for going on to the building of socialism.
The experience of the revolutionary struggle and victory of the Chinese people
has confirmed in practice this conclusion of Marxist-Leninist political economy, and
has proved that the liberation of the colonial and semi-colonial countries from the
yoke of imperialism leads them on to the path of free existence, of material and
cultural prosperity.
The overthrow of the capitalist order in one bourgeois country or another
and its replacement by the socialist order, the falling away of any colonial country
from the imperialist system and the realisation in it of democratic
transformations, take place not as a result of export of revolution, which is a
fiction of the imperialists, but by reason of the profound internal necessities of the
economic development of these countries.
(3) Political economy teaches how to transform economy in the spirit of
socialism. The transition to socialism cannot be carried out by arbitrarily chosen
paths, but is a process conforming to laws. Political economy shows that the
dictatorship of the working class in the building of the new, socialist society relies
first and foremost upon the law of obligatory correspondence between production
relations and the nature of the productive forces. In the transition period there
takes place on the basis of this law the socialisation of the means of production,
the abolition of the exploitation of man by man and the creation of socialist forms
of economy. As relations of capitalist exploitation are abolished, socialist
production relations arise and develop, and the economic laws of socialism begin
to operate and develop. Making use of economic laws, the Socialist State
consistently carries through a policy of industrialising the country and
collectivising agriculture, building socialist society. The building of socialism
proceeds in irreconcilable class struggle against the capitalist elements in town
and country.
Political economy exposes the lying inventions of bourgeois ideologists to
the effect that the working class, when it comes to power, is not capable of
organising the economy. The historical experience of the U.S.S.R. shows what
inexhaustible creative force is generated by the power of the working people. For
the first time in history the working class and working people in a vast country,
comprising one-sixth of the earths surface, cast aside the yoke of exploitation
and oppression, became the masters of their country and created a socialist order
which secured an uninterrupted rise of the productive forces social wealth, and
material welfare and culture of the masses of the people. This proves that the
people are capable of successfully doing without the exploiters, that the working
class, the working masses, are capable not only of destroying the old bourgeois
system of economy but also of building up a new, higher socialist system of
economy. The practice of socialist construction in the countries of peoples
democracy provides further convincing evidence of this.
Political economy provides the economic justification of the need for the
leading role, of the working class in socialist construction, the durable alliance of
the working class with the peasantry, having as its aim the building of socialism
and the abolition of exploitation of man by man. The alliance of the working class
with the peasantry is the unshakeable basis of the social order of all the countries
of the socialist camp. On the basis of the alliance of the working class with the
peasantry the age-old peasant question is being solved and the transition from
small individual peasant farming to large-scale collective economy is being
brought about, delivering the peasantry from poverty and ruin. The victory of
collective farming in the U.S.S.R. has refuted in practice the bourgeois legend that
the peasantry is incapable of taking the path of socialism.
Political economy draws general conclusions from the historical experience
of socialist construction in the U.S.S.R. It shows how a formerly poor and weak
country, as pre-revolutionary Russia was, was transformed into a rich and
powerful country as the Soviet Union is today. From the treasure-house of Soviet
experience the countries of peoples democracy draw knowledge of the proven
path of socialist construction, the laws of the class struggle in the transition
period, knowledge of how the working class achieves unbreakable friendship and
durable alliance with the peasantry, how to consolidate the economic bond
between town and country, how to achieve victory over the exploiting class and
build socialist society.
In order to make use of Soviet experience it is necessary carefully to take
into account the concrete peculiarities of the economic and class relations in each
country, determined by the totality of all the historical conditions of its
development. In the countries of peoples democracy the building of socialism is
taking place in conditions more favourable than those which obtained in the
Soviet Union, in as much as at the present time there exists the powerful socialist
camp headed by the Soviet Union and the Chinese Peoples Republic and an
extremely rich store of experience of socialist construction has been accumulated.
The decisive condition for the victory of socialism and communism in all countries
which have dropped out of the capitalist system is the further strengthening of
the power of the socialist camp, the further development of economic, political
and cultural collaboration between the countries which have entered this camp.
(4) Political economy teaches that the practical work of socialist
construction can be successful only on condition that it is based on the economic
laws governing the development of society. Political economy makes it possible to
come to know the objective laws of economic development and to use them in the
interests of society.
Knowledge of economic laws renders it possible to penetrate deeply into
and grasp the essence of economic processes, bringing to light the progressive
tendencies of development when they are still in their initial stages, scientifically
to foresee the course of economic development and direct it in accordance with
the task of building communism. Political economy arms the cadres in the
struggle for the victory of the new and advanced over the old and obsolete.
Scientific knowledge of economic laws, derived from the study of political
economy, forms the basis of the economic policy of the Communist and Workers
Parties holding power in the countries of, the socialist camp. Guided by Marxist-
Leninist theory, by knowledge of objective economic laws, these Parties are
working out and carrying through a policy that is scientifically based and tested in
practice, a policy which reflects the requirements for the development of the
material life of society and the basic interests of the people; they come forward
as the inspirers and organisers of the revolutionary creative power of the masses.
Throwing light on the operation of the basic economic law of socialism, political
economy guides the cadres in carrying, out their work in accordance with the aim
of socialist productionthe maximum satisfaction of the material and cultural
needs of the people. Political economy reveals the conditions necessary for the
uninterrupted growth and improvement of production on the basis of higher
technique. It shows that the necessary condition for such a growth of socialist
production is the using of the economic law of priority growth of the production of
the means of production, the advance of heavy industry, and on that basis the
continuous growth of technique, all-round development of science and
introduction of the most up-to-date achievements of science and technique into
production.
Political economy teaches that the deciding factor in the further progress
and all-round development of the national economy is the raising by all possible
methods of the productivity of labour in all branches, of productionin industry,
transport, agriculture. Without a continuous growth in the productivity of social
labour it is not possible to achieve maximum satisfaction of the growing demands
of the people. Along the roads of technical progress and growth in the
productivity of labour the basic economic task of the U.S.S.R., that of overtaking
and outstripping the economically more highly developed capitalist countries, is
being fulfilled.
Political economy shows that reliance on spontaneity is profoundly alien to
the socialist economic order, that the building of communist society can take place
only by the planned control of economy, on the basis of the law of planned
development of the national economy and in accordance with the requirements of
the basic economic law of socialism. Study of the requirements of the law of
planned development of the national economy in the concrete conditions of each
particular stage of communist construction helps to maintain the necessary
proportionality in the development of the economy, to carry out the correct
location of socialist production, and most effectively to utilise material, financial
and labour resources.
Political economy reveals the great importance for socialist construction of
the material interest of the masses in the steady increase of production resulting
from socialist relations of production. Revealing the role and importance of the
law of distribution according to work for the development of socialist economy,
political economy gives guidance to the cadres in the consistent application, in all
branches of the national economy, of differential rewards for labour, directly
dependent on its results, and for the elimination of elements of equalitarianism. It
shows the role of socialist emulation as a powerful driving force in the economic
development of socialist society.
Political economy explains the importance of the skilful use of the law of
value, and the economic instruments connected with it, for socialist construction.
Understanding of the operation of the law of value under socialism serves the
cadres as a most important means of improving methods of production, lowering
costs of production, improving economic accounting and increasing the
profitability of socialist undertakings, carrying out a materially well-founded price
policy, giving material stimulation to the development of collective farm
production, developing trade, and perfecting the financial system. Political
economy reveals the tremendous possibilities contained in socialist planned
economy for conducting a strict regime of economy and increasing socialist
accumulation.
Steady growth of the creative activity of the masses in economic and
cultural construction is characteristic of the Soviet Union and the countries
of peoples democracy. For this reason, ever greater importance attaches to
knowledge by the masses of the laws of economic development and the principles
of socialist economy. Arming the cadres with the knowledge of economic laws,
political economy provides the possibility of more and more successfully, utilising
and applying these laws into practice, and thereby raising the efficiency of all
work for the building of socialism and communism.
Revealing the reciprocal relations between economic processes, political
economy makes it possible for every worker to understand the importance of his
activity for the development of the whole socialist system of national economy. It
teaches him to understand that, in the conditions of socialism, the interests of the
whole people, of the whole State, come before everything else.
(5) Political economy shows that socialism is the most advanced mode of
production, having a decisive superiority over capitalism. This fact finds clear
expression in the contrast between the basic economic laws of socialism and
capitalism, determining two distinct lines of development.
Whereas in the capitalist countries production is subordinate to the law of
extracting the maximum profit, dooming the working people to unemployment,
poverty and ruin, to blood wars, in socialist society production is subordinated to
the interests of man, to the satisfaction of his growing needs.
Whereas in the capitalist countries the rate of growth of production lags far
behind the huge possibilities opened out by the present-day level of scientific and
technical development, and is periodically interrupted by devastating economic
crises, in the countries of socialism planned development of economy is being
carried on and a continuous growth of production is taking place, the rate of
which considerably exceeds the growth of production in the developed capitalist
countries.
In the capitalist world a competitive struggle between countries goes on,
with enslavement of some countries by others. Monopoly capital in its unbridled
pursuit of maximum profit is striving to bring about an economic re-division of the
world and world domination, and this leads to the international situation becoming
more acute, to militarisation of the economy and the rise of the danger of fresh
wars. In the camp of socialism there are no exploiting classes with an interest in
international conflicts and military clashes; the socialist, countries, which have
torn up by the root the policy of colonial enslavement and imperialist expansion,
are resolutely and consistently fighting for peace, for the relaxation of
international tension, for peaceful co-operation and friendship between the M
peoples, regardless of the social system of their States. A vivid example of the
new, socialist type of international relations is the relationship between the
countries of the socialist camp, which is based on the principle of complete
equality and mutual advantage, with the aim of bringing about a general
economic advance by these countries and the flourishing of their cultures.
In peaceful competition with capitalism, the socialist system of economy
proves more strikingly every year its superiority over the capitalist system of
economy. At the same time the capitalist system of economy, torn by internal
contradictions, is every year showing more clearly its instability and the fact that
it is historically doomed.
The magnificent perspective of the progressive development of humanity is
classless communist society. Political economy shows the economic conditions of
the transition to communism, generalising from the practice of communist
construction in the U.S.S.R. It shows that objective laws of social development lie
at the basis of the movement of contemporary society to communism.
Communism arises as a result of the conscious creative activity of the many
millions of working people, led, by the Communist Party armed with the theory of
Marxism-Leninism. There exists no force in the whole world capable of holding
back the advancing movement of society on the path to communism. The
tremendous growth of the forces of democracy and socialism, the sharp
aggravation of class contradictions between the. imperialist bourgeoisie, on the
one hand, and the working class and working people on the other, the growing
sweep of the national liberation movements in the colonies, the powerful
movement of the masses of the people and of all progressive forces of
contemporary humanity throughout the world against imperialist reaction and
preparation of new wars-all this is irrefutable proof of the fact that capitalism has
outlived its time and the future belongs to communism.